Strategic Reserve Release Is Only a Short-term Measure... High Oil Prices Will Persist Without Changes in the Strait of Hormuz

Release of IEA Reserves by Asian and Oceania Member States

U.S. to Release 172 Million Barrels of Strategic Reserves

No Effect Without Change in the Strait of Hormuz Situation

RBC Capital Markets: "Conflict to Continue Through Spring"

The United States also approved the release of 2.7 million barrels of strategic reserves in response to the sharp rise in oil prices in 2022. Photo by EPA Yonhap News

The International Energy Agency (IEA) has analyzed that even with the largest-ever release of oil reserves, international oil prices are expected to remain elevated for some time. The agency explained that the release of strategic reserves is merely a short-term measure, given that the Strait of Hormuz is effectively blockaded.

According to the IEA on March 15 (local time), strategic petroleum reserves held by member countries in Asia and Oceania will be released immediately starting March 16. Member countries in the Americas and Europe will also begin releasing reserves from the end of March.

Specifically, a total of 411.9 million barrels will be released, including 271.7 million barrels from government reserves, 116.6 million barrels from mandatory industry stocks, and 23.6 million barrels from other sources. Of this total, 72% is crude oil and 28% is petroleum products.

Only a Short-Term Measure... Normalization of the Strait of Hormuz Is Key

The IEA decided to release 411.9 million barrels of reserves—the largest amount since its founding—but this has proven insufficient to curb the sharp increase in international oil prices. On March 13, the price of West Texas Intermediate (WTI), the U.S. crude oil benchmark, closed at USD 98.71 (about KRW 144,700) per barrel ahead of the reserve release.

The oil market remains unstable because the Strait of Hormuz continues to be virtually blockaded. According to Goldman Sachs, of the 20 million barrels of oil that typically pass through the Strait of Hormuz, about 18 million barrels are currently stranded and unable to be transported. The liquefied natural gas (LNG) industry has been hit even harder, with about one-fifth of global production halted.

Tamas Varga, an analyst at oil brokerage PVM, explained the surge in international oil prices by stating, "This is because oil tankers are being attacked in the Persian Gulf, the Strait of Hormuz is effectively closed, and Iran's new supreme leader has declared an intention to continue the blockade of the strait."

Naval vessel sailing in the Strait of Hormuz. AFP

Tom Reilly, Senior Vice President at consulting firm Rystad Energy, pointed out that "policy announcements such as reserve releases will have only limited impact until transportation resumes."

According to Rystad Energy, before the war, Saudi Arabia, Iraq, Kuwait, and the United Arab Emirates (UAE) exported about 14 million barrels of oil per day. Of this, approximately 5 to 6 million barrels per day were exported through pipelines from Saudi Arabia and the UAE to the Red Sea and Gulf of Oman, while about 9 million barrels per day were transported through the Strait of Hormuz. This 9 million barrels accounts for about 10% of global supply.

In simple terms, releasing about 400 million barrels of reserves could offset supply disruptions for about 40 days, but the reality is different. Reilly emphasized, "The volume that can actually be supplied over a certain period is limited," and added, "It is not as though 400 million barrels suddenly appear in the market."

Reserves Also Depleting... Will Oil Prices Rise Further?

The amount of oil supply disrupted by Iran's threat to blockade the Strait of Hormuz is also much greater than the volume of reserves the IEA can release on a daily basis, adding to concerns.

The United States plans to release 172 million barrels of reserves over 120 days (about four months). This equates to 1.4 million barrels per day, covering only 15% of the supply reduction caused by the threat to blockade the Strait of Hormuz. The time lag until the reserves reach the retail market is also significant; after approval by U.S. President Donald Trump, it takes at least 13 days for the reserves to be supplied to the market.

Fatih Birol, Executive Director of the International Energy Agency (IEA), is speaking at a press conference on global energy market trends held on the 6th. Photo by Reuters Yonhap News

Another issue is that the reserves held by IEA member countries have been substantially depleted. The approximately 400 million barrels of reserves being released, as decided by the IEA, represent about 33% of the total reserves of 1.2 billion barrels. The 172 million barrels the United States plans to release account for 41% of its strategic petroleum reserve of 415 million barrels.

Tobin Marcus, head of U.S. policy and politics at Wolfe Research, stated, "The reserves will partially cushion the oil price shock from the war," but stressed, "This does not eliminate the need to reopen the Strait of Hormuz, and I do not expect further support after this measure."

Rising Concerns About Prolonged Crisis... Will This Drive Energy Diversification?

There are growing concerns that the war with Iran could last longer than anticipated. RBC Capital Markets forecasts that the conflict could continue into the spring, with Brent crude prices potentially surpassing USD 128 per barrel within three to four weeks.

Reilly also stated, "The closure of the Strait of Hormuz will not only damage Middle Eastern national oil companies, but could also have a significant impact on major Western oil companies that account for about 20% of the oil produced in Qatar, the UAE, Iraq, and the Neutral Zone (the area between Saudi Arabia and Kuwait)."

There is also analysis suggesting that this war will serve as a catalyst for accelerating the energy transition, not just in the Middle East but also domestically and elsewhere. Recently, major oil companies have been expanding their business into other regions by securing contracts in Syria, Libya, and several other countries to increase their oil reserves and boost production.

Paul Sankey, founder of Sankey Research, commented, "This situation could lead to a demand-destruction scenario that would hurt everyone," adding that countries most affected in Asia, such as Taiwan, may reconsider their aversion to nuclear energy. He continued, "While the market views the blockade of the Strait of Hormuz as a temporary phenomenon, oil historians regard it as a structural shift in oil risk."

This content was produced with the assistance of AI translation services.