When the global economy was still in the grip of the devastating oil crises of the 1970s, exposing the strangulation exerted by a few major oil states, the International Energy Agency (IEA) was created, hoping to limit future crises.
Almost half a century later, the 32 members of the IEA have drawn up plans to press the emergency button, for only the fifth time in its history.
On Wednesday, the IEA said 400 million barrels of emergency crude oil, a third of the group’s total government reserves, would be released to help calm the oil price shock caused by the US-Israel war against Iran. This is the largest 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 reduced production; then retreated, before nearly tripling again in 1979, after the Iranian revolution.
Since then, economic production has become much less dependent on fossil fuels and new energy producers mean more diverse sources of supply. However, the Iranian response to Donald Trump’s Operation Epic Fury, which effectively closed the important Strait of Hormuz, has underlined how vulnerable the world remains to the price of oil.
As a condition of IEA membership, countries sign up to ensure they have emergency oil reserves, equivalent to 90 days of net imports. In total, they amount to about 1.2 billion barrels, of which about a third is in the US Strategic Petroleum Reserve (which it continues to maintain, despite evading the IEA requirement since the shale gas boom turned the US into a net exporter).
In times of major supply disruption in energy markets, these reserves can then be released (in other words, put up for sale) to facilitate the flow of oil to where it is needed.
There have only been four other coordinated releases of strategic supplies since the IEA was founded in 1974, underscoring the severity of the current crisis. These were: in 1991, after Operation Desert Storm, President George HW Bush’s military campaign against Iraq; in 2005, when Hurricane Katrina cut U.S. production in the Gulf of Mexico in half; in 2011, when NATO allies intervened in the Libyan civil war; and in 2022, following Russia’s large-scale invasion of Ukraine.
The United Kingdom is among those releasing reserves on the market, contributing 13.5 million barrels.
In the case of the UK, that means ordering the release of shares held by private companies on behalf of the government and spread across the UK.
The plans underline the fact that while multilateralism is moribund in many global forums, when an emergency arises, collective action between like-minded countries is still almost possible, although large economies, including China, are outside the IEA.
UK Chancellor Rachel Reeves has been involved in discussions with other G7 finance ministers over the IEA plan, and the US is apparently keen to pitch in, perhaps hoping to limit the impact on fuel prices.
The new IEA release exceeds the 182 million barrels dumped on the market in two separate tranches during the Ukrainian war.
Previous releases have tended to depress the price of oil by $10 to $20 a barrel, although prices have been so volatile in recent days that it may be difficult to separate the impact of additional supplies from that of Trump’s latest pronouncements, or actions on the ground in the Middle East.
But experts say there are several reasons to fear that pulling the lever and sending additional supplies to the market will not solve the problem if violence in the Middle East proves long-lasting.
Neil Shearing, global chief economist at Capital Economics, suggested that closing the Strait of Hormuz cuts off 10 million barrels of supply a day; but the IEA’s largest stock release to date amounted to 2.5 million barrels per day.
Shearing said it mattered whether the extra crude could be transported to where it was needed: “You can only release as much as there is capacity in the pipelines.” And a longer conflict could wipe out more supplies than the IEA stockpile could replace.
Nick Butler, Gordon Brown’s former economic adviser and former BP executive, warned against a knee-jerk release of oil stocks when the crisis could be long-lasting. “These reserves can only be used once: you have to be very careful with how much you release. They are there partly as a symbol, as a confidence-building measure.”
Butler also said that gas, not oil supplies, was under the most pressure, and that there was no equivalent for gas in the IEA.
Butler suggested that in the UK, as well as thinking about how to protect consumers from rising utility bills (as Reeves has admitted it is already doing), the government might even have to draw up plans to ration energy. “I would be very surprised if there wasn’t some degree of rationing, so that priority users get the supplies.”
The concerted action of the world’s largest importers shows their determination to limit the impact of this latest oil crisis. But Iran’s threat to raise the price of crude oil to $200 a barrel also underscores the global north’s continued vulnerability to the price of fossil fuels.
