As prices rise, a record release of emergency oil reserves is planned.

 

As prices rise, a record release of emergency oil reserves is planned.(Image: Getty Images)

Since the beginning of the US-Israeli war with Iran, the G7 nations have stated that they would support the collective release of oil from their reserves to combat rising prices. The group of countries has been meeting with the International Energy Agency (IEA), which has asked member states to make their biggest-ever intervention in the oil market.

 Oil exports through the Strait of Hormuz, which carries a fifth of all oil supplies worldwide, have virtually stopped due to the conflict, and production in the region has decreased. Prices have jumped since the conflict started but stabilised following reports that oil could be released, though experts say the move would only be a short-term solution.

Read More: After three vessels were struck by "unknown projectiles," a cargo ship caught fire in the Strait of Hormuz.

The IEA has asked its 32 members to release 400 million barrels of oil, more than double the amount it released following Russia's full-scale invasion of Ukraine in early 2022, according to Germany's economy minister Katherina Reiche.

 A release could not proceed unless all 32 members agreed to it. Reiche said Germany will "comply with [the IEA's request] and contribute to it, as Germany stands behind the IEA's most important principle of mutual solidarity".

 Earlier on Wednesday, Austria and Japan confirmed they will also release oil from their stockpiles.

 According to reports, the IEA will confirm a release of 400 million barrels from its members' reserves on Wednesday afternoon.

 However, that would only cover about a fortnight's worth of what is typically shipped out of the Strait of Hormuz or three to four days' worth of global supply. "In principle, we support the implementation of proactive measures to address the situation, including the use of strategic reserves," G7 energy ministers stated following a meeting with the IEA on Wednesday. The IEA's member and associate countries represent two thirds of global energy production and 80% of consumption.

 All IEA member countries are required to keep 90 days' worth of their nation's oil use in reserve in case of global disruption.

Image: BBC

The oil itself is not in a single place.  For example, producers like Shell and BP keep stocks at terminals and refineries around the UK and can earmark stocks held elsewhere as counting towards their reserves.

 When it is released, it does not mean a sudden flood of new oil starts moving.

 Instead, producers will make more available in the market for refineries to order, though energy analysts have told the BBC that there is a shortage of refining capacity.

 The other issue with releasing reserves is that it is not something you can do again.

 "Once you release them, they don't exist," Nick Butler, former head of strategy at BP, told the BBC.

Source: BBC