On Wednesday, the International Energy Agency (IEA) announced member nations would release a total of 400 million barrels from their strategic reserves of oil, as the war in Iran continues to cause the worst disruption to energy markets in decades.
The unanimous decision by the members of the IEA, which represents some of the world's biggest oil-consuming nations, is meant to address the acute disruption in oil trade caused by the war. It's the largest release of crude oil the IEA has ever coordinated, and only the sixth time the group has released oil to balance crude markets.
IEA Executive Director Fatih Birol said on Wednesday that the decision by IEA members, who together control some 1.8 billion barrels of stockpiled oil, is a "major action" meant to alleviate the disruption of oil markets.
"But to be clear, the most important thing for a return to stable flows of oil and gas is the resumption of transit through the Strait of Hormuz," he said.
Details about the timing and the amounts of oil each country will contribute have not yet been announced.
Global oil prices, which have been highly volatile for days, dropped below $87 a barrel on Tuesday night, after The Wall Street Journal first reported about the pending IEA recommendation, but were hovering just under $90 after Birol spoke on Wednesday morning. That price had been around $70 before the war began, spiked to nearly $120 late Sunday night, and fell to around $90 in recent days.
The IEA was formed in the wake of the oil crisis of the 1970s. It serves as a sort of counterpart to OPEC, the group of oil-producing nations that work together to coordinate production. While OPEC represents the interests of oil producers, the IEA was established to protect the interests of oil consumers. It coordinates national stockpiles to create a buffer in the case of an extreme shock to global oil supplies — precisely like the one the world is experiencing today.
The group has 32 member countries, including the United States, Canada, Australia, New Zealand, Turkey, Japan, Korea and most nations in Europe. More than a dozen countries are affiliated with the IEA as "association countries," including China, India, Thailand and Kenya. All together, the IEA estimates that its countries account for 80% of global energy demand.
A requirement for membership in the IEA is that countries must commit to maintaining substantial reserves of crude oil or distilled petroleum products, enough to cover at least 90 days of that country's exports, as well as undertake programs to reduce dependency on oil.
Today, some members of the IEA — including the U.S. — are net oil exporters, producing more oil than they need. That means under IEA rules they aren't required to keep stockpiles. But the U.S., which is both the world's largest consumer of oil and the world's largest producer, still maintains the world's largest known stockpile.
The U.S. Strategic Petroleum Reserves (SPR) were last tapped in 2022, during the most recent IEA-coordinated release of oil, in response to Russia's full-scale invasion of Ukraine. It was only the fourth time the SPR had ever been tapped.
Both the Biden administration and then the Trump administration have signaled plans to refill the SPR, but officials have reported that damage to the underground salt caverns that hold the oil has slowed down those efforts.
Currently, the U.S. SPR has about 415 million barrels, out of a total capacity of 715 million barrels.
Oil markets in crisis
Oil prices have swung wildly over the past week, as ship traffic came to a near-standstill in the Strait of Hormuz, a vital waterway through which approximately 20% of the world's oil and liquefied natural gas typically travels. Iran's closure of the strait is blocking millions of barrels of oil per day from reaching markets.
And it's having knock-on effects; countries like Iraq and Kuwait have had to stop producing oil in some fields because with storage tanks full and no ability to send ships through the strait, there is simply nowhere to put the oil.
Some oil is being redirected, including through a pipeline that Saudi Arabia can use to send oil to the Red Sea for export. The U.S. has waived sanctions on Russian crude to ease pressure on markets. Now, IEA members are also helping rebalance markets by tapping their stockpiles.
However, the oil in those stockpiles cannot all be pulled out immediately; there is a physical limit on how quickly it can flow. And oil analysts agree that, as Birol acknowledged, all the world's responses put together cannot fully compensate for the disruption created by the Iran war.
"There is simply no substitute for restoring access through the Strait of Hormuz," Angie Gildea, the global oil and gas leader for accounting giant KPMG, told NPR in a statement sent by email earlier this week. "The tools at our disposal, including strategic reserves, rerouting some exports and floating inventories, can provide some relief at the margins, but they are not structural solutions."
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