Smoke rises following a strike on the Bapco Oil Refinery on Sitra Island, Bahrain, on Monday.Stringer/Reuters
The Group of Seven industrialized countries discussed the possibility of releasing oil from strategic reserves on Monday as the price reached almost US$120 at one point in early European trading on Monday and Iran warned that it would pursue triple-digit oil prices as an economic weapon.
“We discussed all the available options, including making IEA emergency oil stocks available to the market,” International Energy Agency executive director Fatih Birol said on Monday in a statement after joining the G7 finance ministers’ meeting.
The use of that strategic option would depend on market developments, German Finance Minister Lars Klingbeil said in Brussels on Monday.
“Everyone is currently watching developments on the financial markets, in trade and on the markets as a whole,” Klingbeil said. “Then we will see if and when the time is right to pursue this strategic option.”
On social media, the head of Iran’s parliament, Mohammad Baqer Ghalibaf said Iran’s strategy was to force energy prices up to the point that the U.S. and Israel were forced to back down on their attacks on his country.
“The economic consequences of this war spilling over to the level of infrastructure across the region and the world will be vast and long-lasting,” he wrote. “Oil prices could remain in triple digits for some time. The grounding of global economies is the likely outcome of this war.”
In London, the Brent futures price for May contracts rose almost 26 per cent to US$116.38. If they remain above US$112.17, they will mark the biggest single-day climb since the futures began trading in 1988. High futures prices signal that investors think oil for future delivery, in this case, two months ahead, will remain elevated.
The prospect of a G7 joint release of oil reserves pushed down Brent spot prices from their Monday peak of US$119.50. But in midafternoon London trading, Brent was still up 8 per cent over Friday’s close, at just above US$100. Oil was under US$60 in December.
Natural gas prices climbed even faster. They were up 30 per cent because the Strait of Hormuz, through which 20 per cent of all liquefied natural gas (LNG) passes, remained all but closed. European gas prices have doubled since the war began nine days ago.
The energy shock – and the prospect of slowing economies – hit the markets again, with the FTSE 100 down 1.1 per cent and Germany’s DAX off by 1.4 per cent in afternoon trading. France’s CAC 40 index was down almost 2 per cent.
Elevated energy prices in store as Middle East conflict intensifies
Economists published a flurry of notes on Monday that predicted no quick reversal of energy costs as the Israeli and U.S. attacks continue on Iranian oil infrastructure, including fuel depots, turning the Tehran skies black, and Iran responds in kind by hitting oil and gas sites in the Persian Gulf area.
“The market is still pricing predominantly geopolitical risk, and the cumulative build in geopolitical risk premia since early January is roughly US$50/bbl, the highest level ever, reflecting a situation that is totally unprecedented,” Ben Hoff and Michael Haigh of Société Générale Commodities Research said in a morning note.
Elevated energy prices in store as Middle East conflict intensifies
The appointment on Sunday of Mojtaba Khamenei, the son of the slain Iranian supreme leader Ali Khamenei, as his father’s successor is seen as an act of defiance against U.S. President Donald Trump, who described Mojtaba as a “lightweight.” Mojtaba is close to the Iranian Revolutionary Guards, who supported his secret-ballot election – a signal that Mr. Trump’s demands for Iran’s “unconditional surrender” will be ignored.
Throughout the Gulf, the inability of tankers to travel through Hormuz, the narrow strait that connects the Gulf to the Indian Ocean, meant that oil and LNG production was being curtailed or shut down.
The sudden shortage of oil and LNG was rippling through all the energy markets. Prices for benchmark Newcastle thermal coal – used to power electricity generating plants – is up about US$20 a tonne, to US$143, since the Israeli and American attacks began on Feb. 28. In parts of Europe, coal burners are being fired up again owing to the gas shortage.
G7 finance ministers, along with Fatih Birol, executive director of the Paris-based International Energy Agency, held an emergency meeting Monday morning to discuss releasing millions of barrels of oil from strategic reserves. Such a move would be aimed at trying to bring down prices before a price-shock hits consumers and industrial users, potentially stoking inflation.
The 32 members of the IEA, including Canada, hold about 1.2 billion barrels of oil in storage in tanks, oil tankers and salt caverns. Some reports said that the governments are mulling a release of as many as 400 million barrels.
After the meeting, Japanese Finance Minister Satsuki Katayama told a briefing that the International Energy Agency (IEA) called for a coordinated release of emergency oil reserves.
“IEA called for each country to do a coordinated release of oil reserves,” Katayama said. “In response to the current situation... the G7 has agreed to continue closely monitoring developments in the energy market and to take necessary measures to support global energy supply, including the release of oil reserves.”
The ministers and IEA were joined by executives from the Organisation for Economic Cooperation and Development (OECD), as well as from the World Bank and the International Monetary Fund, Katayama said.
The G7 will hold a meeting of energy ministers soon to discuss further steps, Katayama added.
The emergency stockpiles were created in 1974, after the Arab oil embargo quadrupled oil prices. The oil reserves were last tapped in 2022, when Russia’s full-scale invasion of Ukraine pushed prices to US$130 a barrel, up from the pre-invasion price of less than US$100.
The potential flaw in the mass release of oil is that U.S. petroleum reserves are unusually low.
The U.S. Department of Energy reported that the four main caverns along the Texas and Louisiana Gulf of Mexico coast hold 416 million barrels of crude, well below their capacity of 714 million barrels. Last year, Mr. Trump, in his presidential inauguration speech, promised to “refill our reserves right up to the top again,” but never did.
The current reserves represent about 20 days of U.S. oil consumption.
On Monday, the American Automobile Association (AAA) reported that the national average price for a gallon of regular gasoline had jumped to US$3.48, up from US$2.90 a month ago – a 20-per-cent increase.