Does the coordinated release of strategic petroleum reserves by the International Energy Agency have any effect?

This article is reprinted from [Xinhua News Agency];

Xinhua News Agency, Beijing, March 21 — Q&A on Economic Hotspots | Is the International Energy Agency’s Coordinated Release of Strategic Oil Reserves Effective?

Reporter: Su Liang

Recently, the International Energy Agency announced that 32 member countries unanimously agreed to release 400 million barrels of strategic oil reserves, which have begun to be supplied to the market. Market reactions show that after the IEA announced the largest-ever release of reserves, international oil prices initially fell, but then surged again and approached recent highs, indicating that releasing reserves has limited effect on stabilizing oil prices. Why did this happen? Is releasing reserves really useful? If the effect is limited, why release reserves at all?

Can releasing reserves fill supply gaps?

“Releasing reserves can buy time but cannot solve the crisis,” said a report from Bernstein, an American investment firm. The coordinated release of oil reserves by the IEA “cannot fill the gap caused by supply disruptions” and has limited influence on oil price trends.

What if the Strait of Hormuz is blocked? How much oil would the world lose? Data from the IEA and other agencies show that a blockade could reduce global daily supply by 20 million barrels of crude oil and related products. Even if some crude can be transported via pipelines through Saudi Arabia and the UAE, limited pipeline capacity and the maximum throughput of Red Sea ports mean there would still be a shortfall of over 10 million barrels of crude and related products daily.

The IEA member countries agreed to release 400 million barrels of reserves, which could theoretically cover days of supply lost due to a blockade of the Strait of Hormuz. But in reality, releasing oil reserves involves many factors.

Jason Bordoff, founding director of Columbia University’s Center on Global Energy Policy, said that releasing reserves is more complicated than it seems. For example, many U.S. reserves are stored in underground salt caverns in the Gulf of Mexico, and extraction is limited by technical capabilities. Additionally, most Middle Eastern crude is shipped to Asian countries, and releasing reserves in other regions would require idle transportation capacity to supply Asian markets.

Samantha Gross, an energy expert at the Brookings Institution, analyzed that the IEA’s strategic reserves might be released evenly over two months, amounting to about 7% of global demand, while a blockade of the Strait would impact about 15-17% of global demand. “This release sends a positive signal, but it cannot fill the market gap.”

Historical Effectiveness of Reserve Releases

Reuters analyzed the release of reserves by IEA member countries, comparing it to “sticking a Band-Aid on a wound”—a short-term fix that may be temporarily effective but does not address the underlying problem.

Experience shows that releasing energy reserves can be effective in the short term but is almost always a “temporary painkiller,” only easing market panic at the beginning of a crisis, not replacing sustained supply. “Every time it’s been used, it’s helped, but never enough.”

During the Gulf War in the 1990s, about 4 million barrels of oil exports were interrupted daily, and the IEA coordinated releases by the U.S. and others. Analysts say that while oil prices fell quickly after the release, the real reason was increased production by Saudi Arabia and other countries, not just the reserves.

In 2005, after Hurricane Katrina hit the U.S., 1 to 1.5 million barrels of daily oil capacity was disrupted. Releasing reserves helped temporarily stabilize prices but could not fix the underlying infrastructure damage, serving only as a “short-term transition.”

During the 2011 Libyan war, about 1.6 million barrels per day were cut off. After releasing reserves, prices temporarily fell but then rose again. The market realized Libya’s exports would not recover easily, and other oil-producing countries had limited capacity to increase output, so reserves could not solve long-term supply issues.

In 2022, with the escalation of the Ukraine crisis, over 5 million barrels of daily Russian oil exports were disrupted. The IEA coordinated the release of about 240 million barrels of reserves. However, similar to Libya, large-scale releases could not address long-term supply shortages. Moreover, this release excessively depleted Western countries’ oil reserves, leading to a significant decline that has not yet fully recovered.

Why release reserves if the effect is limited?

If the effect is limited, why release reserves at all? Some analysts say that the real purpose of releasing reserves is not about “supply,” but about “expectations.” Currently, the main role of releasing reserves is to “buy time.” By doing so, the U.S. and others can create more space for diplomatic and military maneuvers in the short term, easing political pressure on governments.

In many Western strategic analyses, the role of strategic oil reserves is to “manage expectations,” making markets believe that “governments can intervene in supply,” essentially serving as a “psychological stabilizer.” In the short term, releasing reserves can also help ease the surge in gasoline and other commodity prices, calming public opinion and addressing domestic political concerns.

Additionally, releasing reserves sends a signal internationally that the U.S.-led alliance still has coordination capacity. This can help stabilize allies’ confidence and mend fractures in the Western alliance caused by the U.S.-Israel attack on Iran.

However, releasing reserves is never a fundamental solution to the oil supply crisis. The IEA states that the only long-term solution is to restore navigation through the Strait of Hormuz. Releasing reserves cannot fill supply gaps or stabilize energy markets over the long term. In other words, having reserves does not mean the global energy market can be “worry-free.” The real priority is to achieve a ceasefire and restore normal order as soon as possible.