When the global economy was still in the grip of the devastating 1970s oil crises, exposing the chokehold exerted by a few important oil states, the International Energy Agency (IEA) was created, in the hope of limiting future shocks.
Almost half a century on, the IEA’s 32 members have drawn up plans to hit the emergency button, for only the fifth time in its history.
On Wednesday, the IEA said 400m barrels of emergency crude, a third of the group’s total government stockpiles, would be released to help calm the oil price shock triggered by the US-Israel war on Iran. It is the biggest release of oil reserves in its history.
The cost of a barrel of crude oil quadrupled between October 1973 and January 1974, after members of the Opec cartel cut production; then fell back, before nearly trebling again in 1979, after the Iranian revolution.
Since then, economic production has become far less reliant on fossil fuels, and new energy producers mean more diverse sources of supply. Yet the Iranian response to Donald Trump’s Operation Epic Fury, in effect closing the important strait of Hormuz, has underlined how vulnerable the world remains to the oil price.
As a condition of IEA membership, countries sign up to ensure they hold emergency oil reserves, equivalent to 90 days of net imports. In total, these amount to about 1.2bn barrels – with about a third of this in the US Strategic Petroleum Reserve (which it continues to hold, despite skirting the IEA requirement since the shale gas boom made the US a net exporter).
In moments of great supply disruption in the energy markets, these stocks can then be released – offered for sale, in other words – to ease the flow of oil to where it is needed.
There have only ever been four other coordinated releases of strategic supplies since the IEA’s founding in 1974, underlining the seriousness of the current crisis. These were: in 1991, after Operation Desert Storm, President George H W Bush’s military campaign against Iraq; in 2005, when Hurricane Katrina halved US production in the Gulf of Mexico; in 2011, as Nato allies intervened in the Libyan civil war; and in 2022, after Russia’s full-scale invasion of Ukraine.
The UK is among those releasing reserves into the market, contributing 13.5m barrels.
In the UK’s case, that means ordering the release of stocks held by private companies on the government’s behalf, and distributed around the UK.
The plans underline the fact that, while multilateralism is moribund in many global forums, when an emergency arises, collective action among like-minded countries is still just about possible – though large economies, including China, sit outside the IEA.
The UK chancellor, Rachel Reeves, has been involved in discussions with fellow G7 finance ministers about the IEA’s plan, with the US apparently willing to pitch in, perhaps in the hope of limiting the impact on fuel prices.
The IEA’s new release exceeds the 182m barrels poured into the market in two separate tranches during the Ukraine war.
Past releases have tended to depress the oil price by $10-$20 a barrel, although prices have been so volatile in recent days that it may be hard to disentangle the impact of additional supplies from that of Trump’s latest pronouncements, or the action on the ground in the Middle East.
But experts say there are several reasons to fret that pulling the lever and sending additional supplies gushing on to the market may not solve the problem if the violence in the Middle East proves long-lasting.
Neil Shearing, chief global economist at Capital Economics, suggested shutting off the strait of Hormuz cuts off 10m barrels of supply a day; but the largest ever past IEA release of stocks amounted to 2.5m barrels a day.
Shearing said it mattered whether the additional crude could be transported to where it was needed: “You can only release as much as there is capacity in the pipelines.” And a more prolonged conflict could wipe out more supplies than the IEA’s stocks could replace.
Nick Butler, a former economic adviser to Gordon Brown and longtime BP executive, cautioned against a kneejerk release of oil stocks, when the crisis could be long-lasting. “You can only use these reserves once: you have to be very careful with how much you release. They’re there partly as a symbol, as a confidence boosting measure.”
Butler also said that gas, not oil supplies, was under the most pressure – and there was no equivalent to the IEA for gas.
Butler suggested that in the UK, as well as thinking about how to protect consumers from rising utility bills – as Reeves has conceded she is already doing – the government may even have to draw up plans to ration energy. “I would be very surprised if there isn’t some degree of rationing, so that priority users get the supplies.”
Concerted action by the world’s biggest importers shows their determination to constrain the impact of this latest oil shock. But with Iran threatening to send the price of crude to $200 a barrel, it also underlines the global north’s continued vulnerability to the price of fossil fuels.
