A Barron’s Roundtable panel examines the conflict in Iran and its effects on oil prices and shipping through the Strait of Hormuz.
The ongoing situation in the Middle East has led to a spike in oil prices, which has pushed G7 leaders to think about potentially lifting the state of emergency. This is perhaps an attempt to ease the burden on consumers hit by rising gasoline costs.
Gasoline prices have surged alongside oil prices. According to AAA data, the national average for gas jumped from $3 a gallon last week to $3.48 a gallon on Monday. Crude oil futures reached over $95 a barrel, a significant increase from the range of $60 to $70 in February, marking a 48% rise in just a month, even touching $115 briefly before declining.
French Finance Minister Laurent Lescure stated after a G7 finance ministers meeting that they have not made a final decision on an emergency reserve release because there are no current supply issues in the U.S. or Europe.
He added, “What we have agreed on is to utilize all necessary tools to stabilize the market, including the option of releasing reserves if needed.”
President Trump during the Iran conflict suggests temporary oil price increases might be ‘a small price to pay’ for peace
Soaring oil prices may lead to increased gasoline costs for consumers. (Al Drago/Getty Images)
In response to the oil crisis of the 1970s, Western economies established strategic oil reserves akin to those maintained by the U.S. government. These reserves are meant as a safeguard against energy market disruptions that could negatively impact the economy or pose national security risks.
Phil Flynn, a senior market analyst at Price Futures Group, mentioned that even just mentioning a strategic release could help lower high oil prices, alleviating market concerns about tight supplies.
“Historically, releases from strategic reserves tend to calm market worries, especially when coordinated with other nations,” Flynn noted. However, he did mention that it takes time for the released oil to reach places like refineries, so market confidence in safe transport is crucial.
G7 finance ministers to consider emergency oil reserve release amid rising prices: report
The U.S. and G7 allies are contemplating an emergency release of oil reserves to mitigate market disruptions. (Reuters/Todd Collor)
Andy Lipow, president of Lipow Oil Associates, told FOX Business that he anticipates “G7 nations will need to release oil reserves to show the public they’re taking action to address the price surge.”
He also noted that a release might happen within the next two weeks unless the situation improves.
“The success of this release hinges on whether there’s a real lockdown. The impact on oil tanker loading and damage to infrastructure in the Strait of Hormuz is also a concern,” he added.
The crisis in Iran disrupts production and transport, pushing crude oil prices over $100 per barrel
Oil tankers face threats from Iran in the Strait of Hormuz, impacting shipping volumes. (Reuters/Hamad Mohammed)
What effect could the release of reserves have on gas prices?
A Treasury Department analysis from 2022 looked into the effects of Strategic Petroleum Reserve releases by the Biden administration due to oil supply disruptions linked to events like Russia’s invasion of Ukraine.
The U.S. released 180 million barrels from the SPR over a six-month period in 2022, while partners at the International Energy Agency contributed an additional 60 million barrels.
Interestingly, the impact of U.S. reserves released independently showed that the price drop for gasoline was between $0.13 and $0.31 per gallon, while coordinated releases with IEA partners achieved a more significant reduction of $0.17 to $0.42 per gallon.
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Findings from the Treasury Department report echoed a study from 2017 indicating that independent U.S. releases would lessen gasoline prices by around $0.33 per gallon, whereas joint actions with IEA allies would bring down prices by about $0.38 per gallon.
Reuters contributed to this report.
