G7 backs emergency oil reserve release as Iran war disrupts global supply

The G7 has finally said that it is ready to support a joint release of emergency oil reserves as the US-Israel war with Iran keeps driving prices higher and choking supply.

The group has been in talks with the International Energy Agency, which wants member states to implement the largest reserve release in its history.

The goal here is apparently to ease the pressure after the war Israel and the US started with Iran pushed exports through the Strait of Hormuz close to a standstill and dragged down production across the region.

As you probably know, that waterway carries about one-fifth of the global oil supply, so the damage was felt fast. Prices naturally surged after the war began, then calmed a bit when word got out that reserve barrels could be used.

Even then, traders did not relax. At press time, Brent crude was up about 4% at $91.2 a barrel after earlier hitting $93. U.S. crude was up 2.9% at around $87 after touching almost $89.

Cryptopolitan thinks the IEA’s release could help the market for a little while, but only as a short-term fix if the fighting keeps hitting supply and shipping.

IEA asks all 32 members to approve a record oil release

The IEA asked its 32 members to release 400 million barrels of oil, a figure that would top the action taken after Russia’s full-scale invasion of Ukraine in early 2022 by more than double.

The plan cannot go ahead unless all 32 countries agree. German economy minister Katherina Reiche said Germany would take part.

She said Germany will “comply with [the IEA’s request] and contribute to it, as Germany stands behind the IEA’s most important principle of mutual solidarity”.

Later on Wednesday, Austria and Japan also said they would release oil from their stockpiles. The size of the system matters here. The IEA’s member and associate countries account for about two-thirds of global energy production and 80% of consumption.

Every IEA member must hold reserves equal to 90 days of national oil use for moments like this. Those barrels are not stored in one giant place.

In the UK, for instance, companies such as Shell and BP keep stocks at terminals and refineries, and some supplies held elsewhere can still count toward reserve rules.

When governments approve a release, it does not mean new oil suddenly starts flooding out of one warehouse, okay? It just means that producers make more barrels available for refiners to buy.

Attacks near Hormuz push shipping into chaos and keep oil under pressure

The price surge came as security around Iran’s coast got worse. Several commercial vessels were attacked there, and tanker and cargo traffic through the Strait of Hormuz was badly disrupted by threats from Iran.

Reports then came that American forces had sunk several Iranian ships, including 16 minelayers, near the Strait.

On Wednesday morning, the UK Maritime Trade Operations authority said three cargo ships off Iran’s coast had been hit by projectiles. It said one of those vessels was struck inside the Strait of Hormuz.

The tension spread beyond the sea. Authorities in Dubai said two drones fell near Dubai International Airport on Wednesday. Four people were injured, and the airspace around the city was shut for a short time. The market had already seen a false alarm the day before.

On Tuesday, Cryptopolitan reported that oil prices dropped sharply after a social media post by U.S. Energy Secretary Chris Wright falsely claimed the U.S. Navy had escorted a tanker through the strait.

White House press secretary Karoline Leavitt later told reporters the Navy had “not escorted a tanker or a vessel at this time.”

After that, traders went back to the hard facts: exports through a critical route had nearly stopped, regional output had fallen, ships were getting hit, and governments were preparing emergency oil reserves in case the shock got even worse.

Fatih Birol, the IEA’s executive director, said the crisis had forced action on a scale not seen before.

“The oil market challenges we are facing are unprecedented in scale, therefore I am very glad that IEA Member countries have responded with an emergency collective action of unprecedented size.”

Faith added that:- “Oil markets are global so the response to major disruptions needs to be global too. Energy security is the founding mandate of the IEA, and I am pleased that IEA Members are showing strong solidarity in taking decisive action together.”

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