Member nations of the International Energy Agency (IEA) agreed to collectively release 400 million barrels from strategic reserves based on the IEA’s recommendation. The United States will be releasing 172 million barrels over a four-month period beginning next week. Despite the announcement, oil prices hit over $100 a barrel again, as Iran attacked two oil tankers in Iraqi waters and vowed that they would prevent a “single liter of oil to pass through the Strait of Hormuz for the benefit of the United States, the Zionist or their partners.” The strait now has over a dozen hidden mines dropped by Iranian forces, and Iraq’s oil ports “have completely stopped operations.” Key export terminals in Bahrain and Oman have also suspended operations amid escalating threats.
According to Energy Secretary Chris Wright, “The United States has arranged to more than replace these strategic reserves with approximately 200 million barrels within the next year — 20% more barrels than will be drawn down — and at no cost to the taxpayer.” The Strategic Petroleum Reserve (SPR) is a stockpile of oil owned and operated by the U.S. Department of Energy, located in four underground salt cavern sites in Texas and Louisiana. It was established over 50 years ago, after the Arab Oil Embargo, to be used in emergencies. Only the President has the authority to order oil releases from it. Oil was last released from the SPR in 2022 by President Biden to lower oil and gasoline prices for political purposes during Russia’s invasion of Ukraine, depleting the reserve of a net 240 million barrels without refilling much of it and causing structural damage to the facilities in the process. Before the conflict with Iran, President Trump was working on refilling it while it was undergoing necessary repairs. It is currently at 415 million barrels, about 58% of its 714 million barrel capacity.
The 400 million barrels of consolidated release from IEA strategic reserves represents roughly 20 days of supply coming out of the Strait of Hormuz. The Wall Street Journal reports that Japan intends to begin releasing oil from its strategic reserves as soon as Monday, releasing 15 days’ worth of oil from private-sector stockpiles and another 30 days’ worth from government reserves. Germany intends to participate out of solidarity with other members. Even with these announcements, the price of oil exceeded $100 per barrel because the market viewed the release of emergency reserves as a sign that the conflict may last longer.
Iran Is Still Shipping Oil
As CNBC reports, Iran has sent at least 11.7 million barrels of oil through the Strait of Hormuz since the war began on February 28. The Kharg island terminal, located about 15 miles off the coast of mainland Iran, has long been the country’s primary oil export facility, handling around 90% of its oil exports before tankers travel through the Strait of Hormuz.
Iran has also resumed loading tankers at the Jask oil and gas terminal along the Gulf of Oman, south of the Strait of Hormuz. An Iranian vessel was loading two million barrels of oil — only the fifth such loading there in the past five years, CNBC reports. The Jask oil facility, which is Iran’s only oil export outlet on the Sea of Oman that bypasses the Strait of Hormuz entirely, has rarely been used. There, loading a single Very Large Crude Carrier (VLCC), a type of supertanker built for long-haul oil transport, can take up to 10 days. For comparison, a VLCC takes about one or two days to load in the Kharg Island complex.
While China is still getting oil from Iran, shipments are slightly over half their February level. Current oil shipments are estimated at about 1.22 million barrels per day, compared to 2.16 million barrels per day in February, the highest level since July 2018. China has amassed reserves estimated at 1.3 billion barrels to cushion against potential energy supply risks, capitalizing on sanctioned oil from Russia, Venezuela, and Iran. It has also promoted electric vehicles and other technologies to reduce its reliance on oil, because it has few oil resources of its own.
Analysis
It’s unclear if the release of 400 million barrels from the IEA’s strategic reserves, including 172 million barrels from the U.S. Strategic Petroleum Reserve, will have the price-depressing effects hoped for by its proponents. According to the firm Capital Economics, as reported in the Wall Street Journal, “The release of strategic oil reserves could fully offset the lost supply due to the war, but only if the conflict ends soon… In the firm’s most ‘benign’ scenario, if it takes a month for oil flows to normalize, roughly 350 million barrels of oil supply could be lost because the crisis is reducing supply by more than 10 million barrels a day.” President Trump has claimed that the war will end “soon,” but without a specific timeline it’s rational that markets will worry about oil supply in the short-term. Prices will continue to fluctuate until normal traffic resumes through the Strait of Hormuz and Gulf producers repair damaged infrastructure and bring shut-in drilling rigs back online.
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