Iran War Highlights Role Of IEA Reserves And OPEC Output In Global Oil Market

The global oil market is experiencing a crisis following the Iran war, which entered its second week. In response to the crisis, the International Energy Agency coordinated the release of 400 million barrels from strategic reserves on March 12 after disruptions affected shipments through the Strait of Hormuz.

The Strait of Hormuz is a critical shipping route through which roughly one-fifth of global oil trade normally passes. The disruption in the region is expected to affect the supplies and, in turn, influence the global market.

The latest release of the reserve is a clear indication that the global crude oil supplies are controlled by a combination of producer nations, strategic reserves of the consumer nations, and alliances.

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Global Oil Production Concentrated In Few Countries

The global production of crude oil is dominated by a small group of countries.

West Asia is known to possess some of the largest reserves of crude oil. Saudi Arabia, Iran, Iraq, Kuwait, and the United Arab Emirates are some of the major oil reserve holders in West Asia.

Outside West Asia, some major oil reserve holders are the United States, Russia, and Canada.

Venezuela holds the world’s largest proven oil reserves, followed by Saudi Arabia and Iran, according to international energy data.

The majority of the nations are part of the Organization of Petroleum Exporting Countries and the OPEC+ alliance, which includes a group of nations that coordinate the production levels of crude oil in the global market. OPEC members collectively hold around four-fifths of global proven oil reserves.

Role Of Strategic Oil Reserves

The International Energy Agency was established in 1974 following the global oil crisis to coordinate energy security policies among major oil-consuming economies.

The organisation currently has more than 30 member countries across Europe, North America, and Asia.

The member nations are expected, according to the group’s guidelines, to hold oil reserves that are equivalent to at least 90 days of their net imports.

According to Reuters, the agency has previously coordinated reserve releases during major global events, including the Gulf War, Hurricane Katrina, and the conflict between Russia and Ukraine that began in 2022.

The release announced on March 12 linked to the Iran conflict represents the largest coordinated drawdown of emergency reserves so far.

Producer Alliances And Global Supply

However, the International Energy Agency represents the oil-consuming nations. On the other hand, the OPEC and OPEC+ groups are the producer groups representing the oil-exporting nations.

The decisions taken by the producer groups on oil production and the release of emergency reserves by the oil-consuming nations are the key factors that affect the global oil market during supply disruptions.

India’s Position in the Global Oil System

India is not a full member of the International Energy Agency. However, it has been an associate member of the agency since 2017.

The associate membership of the International Energy Agency allows India to share the data and participate in the emergency coordination efforts with the agency. India applied for full membership of the International Energy Agency in October 2023. Unlike the full members of the agency, India is not required to maintain the emergency reserves equivalent to 90 days of oil imports. The country currently has about 5.33 million tonnes of strategic crude oil storage capacity and has announced plans to expand these reserves.

India has occasionally coordinated with the International Energy Agency during global energy disruptions while maintaining its own policy decisions regarding the use of strategic reserves.

The global oil supply is still being impacted by oil production decisions from major oil-exporting countries and emergency oil releases from oil-consuming countries, as the Iran conflict continues to impact oil supplies.