The United States and dozens of other developed economies broke the glass on Wednesday and announced the largest-ever emergency release of oil reserves in a desperate bid to calm rattled energy markets—and it didn’t work.
Iran War
Crude oil went back over $100 a barrel, and the situation is only getting worse, as Iran intensifies its attacks on tankers in the Persian Gulf and on energy and port infrastructure in nearby Gulf countries.
The reserve release announced Wednesday, of 400 million barrels of oil and oil products, is more than twice as large as the largest release before, including the ones in the early days of the 2022 Russian war on Ukraine. The move, especially the United States’ decision to release almost half of its already-shrunken strategic oil reserves, was a recognition that the conflict with Iran and its disruptions to global energy flows are not likely to end soon, regardless of the Trump administration’s rhetoric about being virtually done with the war.
“Some 400 million barrels of oil shows up and the price goes up. That could be the market starting to understand the dimensions of the problem,” said Kevin Book, managing director of ClearView Energy Partners, an energy consultancy in Washington. “On the one hand, the market goes, ‘Oh, thank goodness.’ But on the other hand, the market realizes, ‘Oh, my goodness.’”
Benchmark oil traded right around $100 a barrel Thursday afternoon, an 8 percent rise on the day.
Part of the problem is that the release of reserves, a Hail Mary move reserved for desperate supply disruptions, will take place in a dribble over a period of months, while the shutdowns to oil production and tanker flows are happening today.
The United States said it would release its 172 million barrels over a period of four months, which would be about 1.4 million barrels a day. The International Energy Agency has never managed to release more than about 1.3 million barrels a day, according to Energy Aspects, a London-based energy consultancy. So the best-case scenario is that the silver bullet, which can only be used once, will cover at most 3 million of the missing 20 million barrels of crude and petroleum products.
That is particularly a problem for countries in Asia (with the exception of China and Japan, which have their own reserves). The U.S. oil that will be piped out of salt caverns in Louisiana in the coming weeks will take until May at the earliest to reach Asian markets, Energy Aspects noted. That is little consolation for countries in the region that are already seeing the impacts of the disruptions around the Strait of Hormuz.
Bangladesh is dispatching troops to quell fuel riots and is seeking a waiver to import Russian oil. Vietnam and South Korea are looking to cap fuel prices. Pakistan is closing schools and imposing other austerity measures due to the fuel crisis. Across Southeast Asia, countries are closing offices, limiting travel, and seeking to mitigate sharply rising costs for transport and industry.
At least there are global reserves of oil; there are not such reserves of liquefied natural gas (LNG), which is Asia’s other big headache. The closure of the Strait of Hormuz, and the temporary shutdown of gas production in Qatar, the world’s second-largest LNG exporter, spell particular pain. That will affect industrial activity across South, Southeast, and Northeast Asia, economists said, with the repercussions potentially lasting for months due to delays in restarting production and exports when the war ends.
The reason even those emergency measures haven’t calmed volatile oil markets is because the Strait of Hormuz remains effectively closed, and Iran’s new leadership remains determined to exploit its main element of leverage by keeping it that way. Only a handful of tankers and other ships have made it out of the restricted waterway since the war began, mostly “shadow fleet” tankers connected to Iran and some Chinese tankers with Iranian oil that Tehran lets through. Reportedly, Iran is exporting more oil now than it was before the war began.