IEA releases record oil reserves to counter Iran war energy shock

The International Energy Agency has launched the largest release of strategic oil reserves in its history in an attempt to quell the turmoil in energy markets unleashed by the Middle East war.

The agency on Wednesday said it would release 400mn barrels in a step that dwarfs the 182mn it released in two phases in 2022 following Russia’s full-scale invasion of Ukraine.

Fatih Birol, the IEA’s executive director, said: “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.”

The move underscores the fears over the threat to the global economy from the US-Israel war against Iran.

Tankers have largely stopped sailing through the Strait of Hormuzthe narrow waterway through which about 20 per cent of the world’s oil and liquefied natural gas is normally transported, because of Iran’s threats to shipping.

At least three vessels were struck in quick succession in or near the strait on Wednesday morning, among the highest tallies for one day after a lull since the weekend.

Despite the risks US President Donald Trump urged oil tankers to brave the journey after touting Washington’s attacks on Iranian navy vessels as a way of defusing the threat of mines.

Trump had dismissed concerns about oil prices last week but has since become more active in trying to lower the price, with the US backing the IEA release.

“I think they should use the strait,” Trump said. “We took out just about all of their mine ships in one night.”

He said the US was “not finished yet” with military operations against Iran, despite on Monday saying the conflict would end “very soon”, comments that at the time led to a sharp correction in oil prices.

The US International Development Finance Corporation on Wednesday chose Chubb as its lead partner for the $20bn reinsurance plan it unveiled last week in an effort to reopen the Strait of Hormuz to commercial oil and cargo shipping.

Ben Black, DFC chief executive, said it would bring the US “one step closer to restoring market confidence and resuming energy and commercial trade disrupted by the conflict with Iran”.

The DFC, which is the US government’s investment arm, said Chubb would serve as the lead underwriter issuing policies for eligible vessels.

The agency said that, together with the insurer, it had identified “several American insurance companies to provide reinsurance policies behind Chubb and alongside DFC to expand market capacity”.

The reinsurance facility is structured to provide $20bn in cover on a rolling basis but that amount could rise.

Brent crude, the international benchmark, hit a four-year high of $119 a barrel on Monday as threats over supply gripped the market, but has fallen back from that peak as a result of Trump’s comments and expectations the IEA was preparing to act.

Brent crude oil, which was trading at about $60 a barrel at the start of the year, rose after the IEA’s announcement, climbing more than 5 per cent to almost $92.30 a barrel.

Ebrahim Zolfaqari, a spokesperson for Tehran’s military headquarters, on Wednesday warned the world should “get ready for ​the oil barrel ​to ⁠be at $200” in the latest sign Iran sees boosting prices as a key part of its campaign.

Under the IEA programme, member countries hold about 1.2bn barrels in strategic reserves that can be tapped in an emergency, though this has been done only five times since the agency was founded following the Arab oil crises of the 1970s.

Birol did not give details about the rate at which the IEA’s 32 members would release the reserves.

Amrita Sen, founder of consultancy Energy Aspects, said the pace at which the oil hits the market was likely to matter more than the total volume.

The closure of the Strait of Hormuz has stripped the market of about 20mn barrels a day of crude oil and fuels such as petrol and diesel, or about a fifth of global demand.

The US, which holds the largest strategic stocks of any IEA member, with 416mn barrels stored in salt caverns on the US Gulf Coast, can in theory release 4.4mn barrels a day, according to the US Department of Energy.

“To be clear, the most important thing for a return to normal flows of oil and gas is a resumption to transit through the strait,” Birol said.

The IEA did not immediately give details of how much each member will release but some members publicised their planned contribution.

The UK government said it would release 13.5mn barrels while France said its share was 14.5mn barrels.

Japan said it would draw 15 days’ worth of domestic demand from private-sector reserves and one month’s worth from its state stockpile.

In a statement after a call among G7 leaders, the EU said it would keep sanctions on Russian oil in place despite market tightness arising from the war in the Middle East.