Dozens of countries agree to release 400 million barrels of oil

The International Energy Agency said Wednesday that member countries had unanimously agreed to release 400 million barrels of oil from their reserves in a bid to lower prices that are soaring due to the war in Iran.

“The oil market challenges we face are of unprecedented scale, which is why I am very pleased that IEA member countries have responded with emergency collective action of unprecedented scale,” said IEA Executive Director Fatih Birol.

The agency has not set a definitive timetable for when the publication – the largest ever by IEA countries – will begin. “The IEA Secretariat will provide further details on how this collective action will be implemented in due course,” a statement said.

Following the IEA’s announcement, U.S. crude oil was trading around $84 per barrel, down only a few dollars from the prior period, a sign that the market does not expect the move to bring quick relief or quickly increase global supply.

Since the start of the war with Iran, the Strait of Hormuz, off its southwest coast, has been virtually closed to tanker traffic due to threats from the military. An estimated 20 million barrels of oil typically pass through the strait each day, helping to meet the daily global demand of more than 100 million barrels of crude oil.

On Wednesday, Britain’s maritime trade monitoring agency reported that at least three ships had been hit by projectiles in the region.

As a result, insurers, oil companies and freight shipping companies have stopped operating in the region or transiting through this critical waterway. With so much oil and liquefied natural gas blocked from reaching the global market, energy prices have soared over the past two weeks.

Since the start of the war, U.S. crude oil prices have increased by more than 25%. Retail gasoline prices rose more than 50 cents to a national average of about $3.57 per gallon. International benchmarks for natural gas, jet fuel and oil have also increased significantly.

The IEA’s 32 member countries include the United States, Britain, Japan, Germany, Canada, Australia, Italy and Mexico.

The IEA said that collectively, member countries hold emergency stocks of more than 1.2 billion barrels.

As of mid-February, Department of Energy data shows that the United States holds a total of more than 415 million barrels of various types of crude oil in its National Strategic Petroleum Reserves. Other countries, in Europe and Japan, have millions more.

However, it will likely take some time to mobilize the reserves before they reach the global market and could potentially lead to lower prices.

Once a presidential order is issued to deploy National Reserve B oil, the Department of Energy typically does not begin deliveries for about 13 days, “and additional shipping time is required before volumes reach end consumers,” JPMorgan Chase commodities analysts wrote in a note Tuesday.

Overall, “policy measures could have limited impact on oil prices unless safe passage through the Strait of Hormuz is ensured,” analysts said, given the amount of oil currently blocked from the global market in the region.

Historically, they say, “emergency releases have peaked at about 1.4 million barrels per day.” They added that this could help, but that “this pace would not materially reduce the 16 million barrels per day deficit and would likely provide only initial relief.”

IEA countries have already made emergency releases, including around 180 million barrels in 2022, following Russia’s invasion of Ukraine.