If the G7 releases its oil reserves, how much would be needed to stabilize oil prices?

According to the Financial Times, analysts are skeptical about whether releasing strategic reserves can resolve the Strait of Hormuz crisis, believing that the current supply shock far exceeds any previous reserve release limits in history.

G7 finance ministers stated this Monday that countries are prepared to “take necessary measures” and will continue consultations on releasing oil reserves to address the energy crisis caused by the blockage of the Strait of Hormuz. This crisis has already reduced daily oil and refined product flows through the strait by as much as 20 million barrels.

Following the news, markets reacted quickly—Brent crude prices dropped from a high of $119 per barrel on Monday to below $90. As of press time, Brent is at $92.

However, several market experts warn that even if countries release hundreds of millions of barrels from reserves, the release rate (a historical maximum of 1.3 million barrels per day) is far below the scale of the supply disruption (20 million barrels per day). If tensions in the Strait of Hormuz persist, there is limited room for oil prices to fall.

Questions About the Effectiveness of Reserve Releases on Oil Prices

Historically, large-scale releases of strategic petroleum reserves have only occurred five times, starting with the Gulf War in 1990-1991 and most recently after Russia’s invasion of Ukraine in 2022. However, none of these releases were sufficient to address the current crisis’s magnitude.

Martijn Rats, a global oil strategist at Morgan Stanley, said that the evidence on whether reserve releases can lower oil prices “is clearly inconsistent.” “Often, oil prices continue to rise because releasing reserves itself signals to the market—‘We are in a highly tense moment,’” he said.

Paul Horsnell of the Oxford Institute for Energy Studies also pointed out that “reserve releases do not necessarily change market behavior.” Buyers tend to continue competing fiercely for any available crude flow rather than relying on limited government-held inventories. “Using inventories to replace flow is extremely difficult,” he said, “the market has never been satisfied with it.”

Global Reserves: Plenty on Paper, Limited in Practice

On paper, the International Energy Agency (IEA) member countries hold about 1.2 billion barrels of public emergency reserves, plus industry inventories that can be mobilized, totaling a substantial amount.

According to IEA data, by the end of last year, governments of OECD countries controlled just over 900 million barrels of crude oil reserves, along with about 300 million barrels of refined products (gasoline and diesel). Additionally, oil companies, traders, and refineries hold about 2.8 billion barrels of oil products, of which 600 million barrels are under technical government control.

However, these figures are significantly reduced in actual operation. Horsnell noted that some inventories counted as reserves are part of normal commercial operations, such as in-transit crude in pipelines. “You can’t release it all, or the entire system would grind to a halt,” he said.

Furthermore, countries like the UK and Greece have no direct government-controlled reserves, relying entirely on commercial inventories, and there is considerable flexibility in how countries report these figures.

The IEA also estimates that about 2 billion barrels of crude are currently loaded on tankers at sea, much of which belongs to Russia, Iran, or Venezuela. If sanctions are revised, this oil could theoretically be released to buyers.

Release Speed Cannot Keep Up with the Gap

Even if countries are determined to use their reserves, the speed of release is a major constraint. Past releases have typically involved auctions to large oil companies and traders, who then transport the oil to refineries in need; some European governments have also allowed refineries to reduce mandated product holdings to push more oil into the market.

Rats said, “The highest recorded release by all IEA members combined is 1.3 million barrels per day. Theoretically, it might reach 3 to 3.5 million barrels per day, but that has never been achieved.”

In comparison, approximately 20 million barrels of crude and refined products flow through the Strait of Hormuz daily. Horsnell bluntly stated, “This is the largest-scale oil crisis in history, and the magnitude of the problem far exceeds any possible release from strategic reserves.”

Asia Will Bear the Brunt, Europe Will Also Face Shortages

In the face of supply shocks, Asia is under the most pressure. Due to heavy reliance on Middle Eastern oil imports, some governments have begun energy rationing and restricting refined product exports.

Kitt Haines, an oil inventory analyst at Energy Aspects, said, “Everyone will face challenges. I don’t think any contingency plan has considered this level of supply disruption. Asia is particularly hard-hit because it imports the largest volume of Middle Eastern crude.”

While US and EU policymakers currently appear relatively calm about the supply tightness, market observers’ concerns are more urgent.

Rats pointed out that if the situation continues, Europe could face aviation fuel shortages “within weeks,” and warned that the problem has already spread to Asia and the US. “This is the largest supply shock in oil market history, nearly twice the scale of the Suez Crisis— which affected 10% of global supply at the time,” he said.

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