Energy markets remain unconvinced despite record IEA oil reserve intervention

Global oil prices have continued to climb despite the International Energy Agency (IEA) announcing the largest coordinated release of emergency reserves in history. The Paris-based energy watchdog said this week it would release about 400 million barrels of oil from strategic reserves in an effort to stabilise markets following disruptions caused by the war involving the United States and Israel against Iran. Despite the move, global benchmark Brent crude rose roughly 15 percent after the announcement.

While the IEA’s release may offer some relief in the short-term, an article by Al Jazeera cites analyst opinions that believe it will likely have a minimal effect on lowering prices if the Strait of Hormuz remains effectively closed

“It’s not a silver bullet to solve everything. You have to solve the underlying problem,” Maksim Sonin, an energy executive and fellow at Stanford University Centre for Fuels of the Future, told Al Jazeera.

“Markets trade on expectations, and so far they are on the concerned side,” Sonin said.

Shipping through the Strait of Hormuz — bordered by Iran, Oman and the United Arab Emirates — has largely halted after Tehran threatened vessels operating in the area. The waterway normally carries about one-fifth of the world’s oil supply, making it one of the most critical energy chokepoints globally.

Iran’s Islamic Revolutionary Guard Corps (IRGC) said this week it would not allow “even one litre of oil” to pass through the strait and warned that prices could rise to $200 per barrel.

Meanwhile, mixed signals from Donald Trump have added to uncertainty in global markets. The US president suggested at various points that the war could end “very soon”, while also saying American forces had not yet “won enough”.

Oil prices have swung sharply as a result. Brent crude climbed as high as $119 per barrel on March 9, before falling below $80 the next day after US Energy Secretary Chris Wright incorrectly claimed that the United States Navy had escorted an oil tanker safely through the strait.

Although the IEA’s planned release of strategic reserves is historic in scale, analysts say it is meant only as a temporary buffer against a rapidly growing supply gap.

Under normal conditions, around 20 million barrels of oil per day move through the Strait of Hormuz. After nearly two weeks of fighting, the global supply shortfall may already exceed 200 million barrels, more than half the volume the IEA intends to release.

“If this continues, the release will only buy temporary relief,” Gregor Semieniuk, a professor of public policy and economics at the University of Massachusetts Amherst, told Al Jazeera.

“My sense is the release is already priced in – that’s why prices fell to the 80s after rising to almost $120 a barrel,” Semieniuk said.

“Moreover, once it’s released, part of the firepower is gone, and a continued blockage is even more threatening,” he said.

“So if market expectations are that the reserve release cannot make up all the shortfall, it will do little to check prices beyond what it has already done,” he added.

Logistics behind IEA oil reserves

While the IEA coordinates emergency releases, the reserves themselves — totalling about 1.8 billion barrels — are held by individual member states.

There are also practical limits to how quickly the agency’s 32 member countries can bring additional supplies to the market. Analysts at JPMorgan estimate that, based on previous coordinated releases, production could increase by only about 1.2 million barrels per day, a relatively small share compared with the daily volumes normally passing through the Strait of Hormuz.

In its announcement, the IEA did not specify a detailed timeline for the release, saying further information would be provided later.

“If the roughly 400 million barrels of strategic reserves being discussed convinces traders that supply can meet demand in the near term, it can calm prices for a while,” Chad Norville, president of industry publication Rigzone, told Al Jazeera.

“But if the disruption persists and the market begins to doubt that replacement supply is sufficient, history shows prices can move sharply higher again.”

By Nazrin Sadigova