"It's 400 million barrels. I repeat, 400 million." The Executive Director of the International Energy Agency, Fatih Birol, emphasized as much as possible in his appearance before the media the historical magnitude of the agreement just unanimously reached by its 32 members. The US, Japan, Germany, and the world's major countries, including Spain, are releasing part of their emergency reserves, accumulated to prevent supply crises, in an attempt to stabilize the market, hit by the Iran crisis. However, it is not considered sufficient so far, indicating Western impotence in the face of a war with energy consequences like the one unleashed on February 28, blocking Ormuz, a strait of just 21 nautical miles through which 20% of the world's oil traffic passes.
As Birol's own data shows, this record global effort to calm the market only equates to about 20 days of the closure of the Strait of Ormuz, a short period if, as feared by the markets, the war lasts much longer than this month.
As a result, Brent climbed 4% after the announcement and rose above $90. At the opening on Thursday, it rose more than 7% to around $100 per barrel, a level it surpassed in the early hours, moving further away from the $70 range before the US and Israel attacks on Iran, the fourth-largest oil producer in the world with the ability to close Ormuz, through which 20% of the world's oil and gas flows. Nevertheless, the agreement reached within the IEA, the organization established in 1974, is unprecedented in scale.
400 million barrels represent 20% of the emergency reserves held by IEA member countries. In total, according to official data, member states have 1.2 billion barrels of emergency reserves and require the industry to retain another 600 million. Releasing them into the market doubles the previous largest effort, which took place in 2022 when around 200 million barrels were released to contain prices following the Russian invasion of Ukraine. As Birol pointed out, the current agreement is the sixth reached within the IEA since its establishment in 1974, surpassing not only the two triggered by the Ukraine war but also those caused by Hurricane Katrina, the civil war in Libya, and even the first Gulf War.
"It is the largest release of emergency oil reserves in the history of our institution," emphasized the Turkish director. He justified it "to compensate for the supply loss caused by the effective closure of the Strait of Ormuz" and "to alleviate the immediate impacts of the market disruption." However, he was realistic: "To be clear, the most important thing for stable oil and gas flows to return is the resumption of transit through the Strait of Ormuz." One reason the agreement did not dazzle the markets is the lack of detail on how the reserves will be released. Birol only indicated that each member country will do so at a pace it deems appropriate, but this could significantly limit the scope of the historic measure because if done slowly, the impact of the Ormuz closure on the market will be more intense. Analysts argue that the pace is as important as the quantity of barrels released.
UNITED STATES, BEHIND THE SCENES
It is in the background of the IEA announcement. Donald Trump shows growing concern about the war's impact on fuel prices and also on the fact that Gulf allies are losing a fortune by not being able to export their oil and gas through Ormuz. "What the IEA has announced is reasonable," said US Interior Secretary, Doug Burgum, to CNBC. "We have a temporary transit problem that we are resolving militarily and diplomatically —and that we can and will resolve—, this is the perfect time to consider releasing part of those reserves to alleviate some pressure on the global price." The US plays a prominent role in the IEA, and the other partners also want to keep it in the organization after Trump's threats to leave such multilateral institutions.
It holds significant emergency reserves and is one of the decision's main players. Its Prime Minister, Senae Takaichi, pushed for unanimity in the decision by announcing her contribution to the agreement first. "Without waiting for an official decision on the release of international reserves in cooperation with the International Energy Agency (IEA), Japan has decided to take the initiative in releasing its reserves starting from the 16th of this month to facilitate supply and demand in the international energy market," Takaichi announced. "Tankers are practically unable to pass through the Strait of Ormuz, and it is expected that crude oil imports to Japan will decrease significantly from the end of this month," she added. Japan has a high energy dependence on the Middle East.
The Spanish Third Vice President, Sara Aagesen, joined the IEA's unanimity and announced at a breakfast organized by Europa Press that Spain would release the equivalent of just over 12 days of consumption. That is, 11.5 million barrels, according to Ministry estimates. This represents around 13% of the 92 days Spain has accumulated for emergency situations. Aagesen sees no issue as there is no risk of supply shortages and it is necessary to contribute to the international agreement. "We support less tense markets and that other countries, whose tensions go beyond prices, can have a supply response." If Spain had been left out of the IEA agreement, it would have exacerbated Trump's displeasure with the Spanish government.