There is only one person’ who can decide to end the war on Iran
Why historic release of oil reserves may do little to tame surging prices
Global oil prices are continuing to surge despite the International Energy Agency’s (IEA) announcement of the largest release of emergency reserves in history.
Brent crude, the international benchmark, rose about 15 percent after the Paris-based IEA on Wednesday announced plans to release 400 million barrels to stabilise prices amid the fallout of the United States and Israel’s war with Iran.
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Oil prices hovered at about $100 a barrel as of 02:00 GMT on Thursday, up more than 35 percent compared with before the start of the war.
While the IEA’s release may offer some relief in the short-term, it will likely have a minimal effect on lowering prices if the Strait of Hormuz remains effectively closed, according to market analysts.
“It’s not a silver bullet to solve everything. You have to solve the underlying problem,” Maksim Sonin, an energy executive who is a fellow at Stanford University’s Center for Fuels of the Future, told Al Jazeera.
“Markets trade on expectations, and so far they are on the concerned side,” Sonin said.
Traffic through the strait, which is bordered by Iran, Oman and the United Arab Emirates, has come to an effective halt amid Tehran’s threats against shipping in the region, blocking about one-fifth of the global oil supply.
Iran’s Islamic Revolutionary Guard Corps (IRGC) said on Wednesday that it would not allow “even one litre of oil” through the waterway and the world should expect oil to soar to $200 a barrel.
At least five commercial ships were attacked in the region on Wednesday, including two oil tankers in the Iraqi port of al-Faw.
US President Donald Trump has offered mixed messages on how long the war on Iran could last, variously saying that it would end “very soon” and that US forces had still not “won enough”.
‘Temporary relief’
Oil prices have been on a roller coaster ride in recent days amid fears of prolonged turmoil in the global energy sector.
Brent crude soared as high as $119 on Monday, then plunged below $80 on Tuesday after US Energy Secretary Chris Wright falsely claimed that the US Navy had escorted an oil tanker through the strait.
While the IEA’s release of strategic reserves is historic in scope, it seeks to temporarily plug a massive – and rapidly growing – shortfall.
About 20 million barrels of oil pass through the strait each day under normal circumstances.
After 12 days of war, the global shortfall already exceeds 200 million barrels – more than half of the IEA’s planned release.
“If this continues, the release will only buy temporary relief,” Gregor Semieniuk, a professor of public policy and economics at the University of Massachusetts Amherst, told Al Jazeera.
“My sense is the release is already priced in – that’s why prices fell to the 80s after rising to almost $120 a barrel,” Semieniuk said.
“Moreover, once it’s released, part of the firepower is gone and a continued blockage is even more threatening,” he said.
“So if market expectations are that the reserve release cannot make up all the shortfall, it will do little to check prices beyond what it has already done,” he added.
There are also constraints on how quickly the IEA’s 32 member countries will be able to get fresh supplies to the market.
JPMorgan has estimated that, based on past precedent, IEA member countries would be able to boost their output by 1.2 million barrels per day at most – a fraction of the daily volume that had moved through the strait.
In its announcement on Wednesday, the IEA did not provide an exact timeline for the release, saying it would provide further details in due course.
While the IEA coordinates the release of international stockpiles totalling some 1.8 billion barrels, reserves are held and managed by individual member countries.
The US Department of Energy said on Wednesday that it would release its portion of the reserves – totalling 172 million barrels – beginning next week. Japanese Prime Minister Sanae Takaichi said her government would start releasing 80 million barrels as early as Monday.
‘History shows prices can move sharply higher again’
“If the roughly 400 million barrels of strategic reserves being discussed convinces traders that supply can meet demand in the near term, it can calm prices for a while,” Chad Norville, president of industry publication Rigzone, told Al Jazeera.
“But if the disruption persists and the market begins to doubt that replacement supply is sufficient, history shows prices can move sharply higher again.”
The IEA has coordinated releases of reserves on five previous occasions, with varying results.
After the IEA announced plans to release 60 million barrels shortly after Russia’s 2022 invasion of Ukraine, oil prices almost immediately surged about 20 percent to $113 a barrel, though prices eased gradually over the proceeding months.
The IEA’s efforts to boost supply in the run-up to the 1991 Gulf War, by contrast, were widely credited with bringing stability to the market, with prices plunging by about one-third the day after the US began air strikes on Iraq.
Semieniuk, the University of Massachusetts Amherst professor, said he expects prices to rise dramatically if the strait’s effective closure extends into next week.
“Unless the conflict is ended this week, I wouldn’t be surprised for the oil price to pass $150 a barrel eventually, after effects from strategic buffer stocks have worn out,” Semieniuk said.
“I can’t make a forecast as to how high the oil price goes, but using back of the envelope calculations, a 20 percent supply cut could in principle lead to above $200 per barrel as demand competes for a limited supply,” he said.
Five vessels attacked amid reports of Iranian drone boats, sea mines
Iranian explosive-laden boats appear to have attacked two fuel tankers in Iraqi waters, setting them ablaze and killing one crew member, after projectiles struck four vessels in Gulf waters, according to reports.
The ships targeted in late-night attacks on Wednesday in the Gulf near Iraq were the Marshall Islands-flagged Safesea Vishnu and the Zefyros, which had loaded fuel cargoes in Iraq, two Iraqi port officials told the Reuters news agency. One Iraqi port security source said the Zefyros was flagged in Malta.
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“We recovered the body of a foreign crew member from the water,” one port security official said, as Iraqi rescue teams continued searching for other missing seafarers. It was not immediately clear which ship that person was linked to.
“A boat belonging to the Iraqi Ports Company rescued 25 crew members from the two vessels, and the fires are still burning on both ships,” Farhan al-Fartousi, director general of the state-run General Company for Ports of Iraq (GCPI), told Reuters.
Al-Fartousi told Iraq’s state news agency that oil ports have completely stopped operations following the attacks, while commercial ports continue to function.
Al Jazeera’s correspondent in Baghdad, Iraq, Mahmoud Abdelwahed, said the attack on the two tankers was described as sabotage by officials.
“Iraqi officials say this is a flagrant violation of Iraq’s sovereignty given the fact this act, they say, of sabotage has happened in Iraq’s territorial waters,” Abdelwahed said.
Reuters said that reports of the use of explosive-laden unmanned surface vessels, which Ukraine has used with great effect in its war with Russia, come as Iran has blocked oil shipments from transiting the key Strait of Hormuz, through which one-fifth of the world’s oil and gas transits but has been blocked amid the United States-Israeli war on Iran.
Reuters, citing two unnamed sources, also reported on Wednesday that Iran has deployed about a dozen mines in the strait, while US President Donald Trump said US forces had struck 28 Iranian mine-laying vessels, amid warnings by Trump of severe repercussions should Iran lay mines in the key waterway for global shipping.
Strait of Hormuz sealed
Iran’s Islamic Revolutionary Guard Corps (IRGC) have warned that any ship passing through the Strait of Hormuz will be targeted.
Early on Thursday, the United Kingdom Maritime Trade Operations (UKMTO) centre said an unidentified projectile struck a container ship, causing a small fire, 35 nautical miles (64.8km) north of Jebel Ali in the United Arab Emirates. The crew were reported safe.
The Thai-flagged Mayuree Naree dry bulk vessel was struck by “two projectiles of unknown origin” while sailing through the strait on Wednesday, causing a fire and damaging the engine room, the ship’s Thai-listed operator Precious Shipping said in a statement.
“Three crew members are reported missing and believed to be trapped in the engine room,” Precious Shipping said.
“The company is working with the relevant authorities to rescue these three missing crew members,” it said, adding that the remaining 20 crew members had been safely evacuated and were ashore in Oman.
Images shared by Thai news outlet Khaosod English showed what were reported to be crew members of the ship after their rescue by Oman’s navy.
The IRGC said in a statement carried by the semiofficial Tasnim news agency that the ship was “fired upon by Iranian fighters”, suggesting the first direct engagement by the IRGC, which has previously fired missiles or drones.
The Japan-flagged container ship ONE Majesty also sustained minor damage on Wednesday from an unknown projectile 25 nautical miles (about 46 kilometres) northwest of Ras Al-Khaimah in the UAE, two maritime security firms said. Its Japanese owner Mitsui OSK Lines and a spokesperson for Ocean Network Express, its charterer, said the vessel was struck while at anchor in the Gulf, and an inspection of the hull revealed minor damage above the waterline.
All crew are safe, they said, adding that the vessel remains fully operational and seaworthy. The owner said the cause of the incident remained unclear and was under investigation.
A third vessel, a bulk carrier, was also hit by an unknown projectile approximately 50 nautical miles (about 93km) northwest of Dubai, maritime security firms said.
The projectile had damaged the hull of the Marshall Islands-flagged Star Gwyneth, maritime risk management company Vanguard said, adding that the vessel’s crew were safe. Owner Star Bulk Carriers said the ship was hit in the hold area while it was anchored. There were no crew injuries and no listing.
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