The International Energy Agency (IEA) has agreed to release 400 million barrels of emergency oil reserves in its largest collective drawdown on record, as governments move to contain a surge in energy prices fuelled by war in the Middle East.
IEA Executive Director Fatih Birol stated on Wednesday that the scale of challenges facing the oil market is “unprecedented,” noting that member states responded with an “unprecedented collective emergency action.” The decision was reached unanimously, though specific details regarding the pace and location of the fuel releases—critical factors for market stability—were not immediately specified.
The announcement follows a spike in oil prices to nearly $120 a barrel in London earlier this week, triggered by the effective cessation of maritime traffic through the Strait of Hormuz. While futures prices eased slightly following the IEA announcement, Birol emphasised that market stability depends primarily on the resumption of transit through the vital waterway, which handles approximately 20% of the world’s seaborne oil.
The 400m barrel release significantly exceeds the 182.7 million barrels deployed in 2022 following the invasion of Ukraine. While the 2022 action aimed to release 2 million barrels per day (bpd), analysts suggest the potential supply losses from the current crisis could be far greater.
Meanwhile, major Middle Eastern producers have intensified supply cuts as regional storage facilities reach their capacity. Saudi Arabia, Iraq, the United Arab Emirates (UAE), and Kuwait have collectively reduced production by up to 6.7m bpd, according to people familiar with the matter. This reduction represents approximately one-third of their combined output and 6% of global supply.
Individually, Saudi Arabia has cut production by between 2 million and 2.5 million bpd, while Iraq’s reduction of 2.9 million bpd marks the largest cut on a relative basis. The UAE has reduced output by 500,000 to 800,000 bpd, and Kuwait by roughly 500,000 bpd. Saudi Aramco Chief Executive Amin Nasser declined to comment on production levels during an earnings call on Tuesday.
Supply pressures were further exacerbated after the UAE shuttered its largest refinery, Ruwis, on Tuesday as a precaution following a drone attack in the area.
Japan previously announced a unilateral release of approximately 80m barrels, scheduled to begin as early as March 16. The IEA, which coordinates stocks for 32 member nations, stated its members hold more than 1.2 billion barrels in public emergency reserves, with an additional 600m barrels held in industry stocks under government mandates.
The US Strategic Petroleum Reserve (SPR) currently holds approximately 415 million barrels, just over half its total capacity. Natasha Kaneva, head of commodities strategy at JPMorgan, noted the United States is likely to provide the largest portion of any drawdown. However, Citigroup estimates that between 11m and 16m bpd are being lost daily from the Gulf, a figure that exceeds the maximum withdrawal capacity of the US SPR, which the Department of Energy lists at 4.4 million bpd.
Humayun Falakshahi, lead analyst at Kpler, noted that the speed of the release is the “crucial factor” in determining whether the intervention can successfully bridge the supply gap.
The IEA has previously coordinated five similar interventions: during the 1991 Gulf War, the 2005 hurricanes Rita and Katrina, the 2011 Libyan civil war, and twice in 2022.
