Oil futures are back above $100 a barrel, the latest rise after days of wild price swings in the market since the United States and Israel first attacked Iran. But this rally came after the International Energy Agency announced on Wednesday that more than 30 countries would release a record amount of oil from their emergency reserves.
Instead of reassuring nervous markets, the news appeared to further spook traders by underscoring how far the world is from reopening trade in the Strait of Hormuz, the narrow waterway and vital trade route that separates Middle Eastern oil producers from their customers. This concern was further reinforced when three ships were attacked in the canal on Wednesday.
Before the war, the strait carried more than 20 million barrels a day, about a fifth of the world’s supply. That traffic is practically stopped. While world leaders agreed to release a record 400 million barrels of oil from strategic reserves, that’s only about 20 days of oil that would normally flow through the strait.
And the war began almost two weeks ago, with no end in sight.
“No amount of storage can replace 20 million barrels a day of continuous flow,” said Edward C. Chow, a senior associate at the Center for Strategic and International Studies, a Washington think tank, and a former Chevron executive.
Tapping those emergency oil reserves is easier said than done. The reserves are stored in huge facilities spread around the world.
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South Korea, for example, has storage sites located around the peninsula, according to the Korea National Oil Corporation. Some facilities, such as one in Okinawa, Japan, are shared with commercial inventories owned by producers such as Saudi Arabia’s Aramco.
Member countries of the International Energy Agency, an organization based in Paris, must keep at least 90 days of their imports as emergency reserves.
Getting oil to flow from reserves also takes time. There are physical limits on how quickly oil can be extracted from storage, but also more mundane obstacles, such as finding buyers, writing contracts and the basic logistics of moving supplies around the world.
The maximum rate at which the United States can extract oil from its reserves is only 4.4 million barrels per day, according to the US Department of Energy.
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Even if shipments resume in the strait, it could be months before energy markets return to normal, according to June Goh, a Singapore-based oil market analyst at Sparta, a commodities data firm.
Refineries are complex, tightly sequenced operations and cannot be turned on and off like a light switch. If refineries are forced to close, it would take at least two months for them to return to normal operations, even after regular shipments return, he said.
Oil prices rose sharply after the war began on February 28, briefly topping $110 a barrel this week before falling again.
Markets are beginning to reflect the possibility that there is no short-term solution to the conflict and its consequences on oil supplies, and that even releasing reserves is only a temporary solution.
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Traders had been betting that the conflict would be short and that President Donald Trump would back down as he has on trade disputes, said Edward Fishman, a fellow at the Council on Foreign Relations. But unlike tariffs, the strait is not something Trump can unilaterally open or close.
Even if the United States declared an end to military operations, there is no guarantee that Iran would quickly reopen the strait, Fishman said. Iran’s leaders have said publicly that their goal is to expel the United States from the Persian Gulf entirely, and after two weeks of American attacks, they may have little reason to back down.
“There is only one party that can reopen the strait,” he said. “And that is Iran.”
This article originally appeared in The New York Times.
