The International Energy Agency (IEA) made itself a prime time slot just after the market opening this morning, declaring that its members would release 400 million barrels amid the ongoing conflict in Iran.
The proposed release would be the largest ever, larger than the 362 million+ barrel relief that the IEA (180 million) and the U.S. (182 million) jointly delivered in 2022 as a result of Russia’s invasion of Ukraine and the subsequent price shock. Prices promptly surpassed $125/bbl.
But despite the announcement, oil prices barely budged. So what’s 400 million barrels really? That depends on how quickly the conflict can end.
What is the IEA’s release?
The proposed 400 million barrel release by the IEA is the largest ever, underscoring the seriousness of the situation. It aims to arrest rising oil prices as shipping corridors like the Strait of Hormuz remain shut and the regional conflict ensnares Gulf-era oil producers.
At first, the announcement seemed to achieve the desired effect, even without specifics about when the barrels would arrive on the market. Instead, a statement simply read: “The IEA Secretariat will provide further details of how this collective action will be implemented in due course.”
The release follows Japan’s release of 80 million barrels, or 15 days of its oil consumption, from its own strategic reserves, an effort that will begin next week amid the ongoing conflict. More countries are expected to follow with releases of their own.
But as soon as it was priced in, the impact of the IEA’s 400 million barrel announcement quickly faded, replaced by renewed fears of rising prices and a prolonged conflict in the region.
This afternoon, Brent Crude Oil is up 4.81% to $92. Across the pond, U.S. Crude Oil is up 4.73% to $87.40. Both are back above their pre-announcement levels, raising the question: Why isn’t the announcement of the largest-ever barrel release holding oil prices in check?
Why isn’t it moving prices?
Even if the conflict ended today, it could take weeks or months to restore order, affecting markets long after missiles or drones stop flying.
President Donald Trump initially ignited excitement in the market by saying that the operation in Iran was “very complete, pretty much” on Friday, but most of that excitement has faded as the President’s comments have been interpreted to mean at least three more weeks of fighting. And short of a diplomatic offramp, even staffers admit that there’s no clear timeline for restoring the region’s stability.
With that, nearly a fifth of global oil supplies, at least a third of fertilizer ingredients, and other important industrial compounds remain stuck in place.
So, what’s 400 million barrels, really?
The IEA’s strategic release might be seen as a bridge for oil markets, but if the bridge isn’t long enough to outlast the ongoing conflict, additional action might be necessary.
400 million barrels is approximately four days of global oil supply. Spread out over time, it could help settle the market, but the market will always price based on expectations. Right now, with prices on the rise, it appears that investors are betting on more turbulence.
This doesn’t just impact the energy markets, though. Many industrial chemicals and compounds are also stuck in the region, including some used in semiconductor fabrication and fertilizer production. The impact on the latter in particular has already been felt in the market.
Related: It’s not just rising oil prices you’ll have to worry about if Iran conflict continues
At this juncture, only a cessation of fighting could return the region to normalcy and stability — and reducing volatility in oil prices and other markets.
