Emergency crude stockpiles maintained by major consuming nations are emerging as a crucial safeguard as uncertainty surrounding oil flows through the Strait of Hormuz intensifies.
US President Donald Trump said on March 3 that he had instructed authorities to activate political risk insurance and guarantee mechanisms to safeguard maritime trade passing through the Gulf, particularly energy shipments. However, the shipping industry says the move is likely to have only a limited impact on easing the crisis.
Concerns that the strait could remain closed longer than expected are pushing countries highly dependent on Gulf oil to seek alternatives, bringing the role of emergency strategic petroleum reserves back into focus.
Most oil transported through the Strait of Hormuz is shipped to Asian countries, with China, India and Japan among the main importers.
Experts say releasing strategic oil reserves immediately could limit policy options if the crisis deepens further. At the same time, refraining from using reserves could weaken market confidence in government intervention, making the issue a key factor shaping oil price movements.
- Reserve use should follow market signals
Kenneth Medlock, senior director of the Center for Energy Studies at Rice University's Baker Institute, told Anadolu that during periods of sharp price increases, the question of under which supply disruption scenarios reserves should be used economically frequently arises.
Medlock said the most effective approach would be a rules-based mechanism rather than discretionary decisions.
"The most economically efficient approach to use of the SPR would not be discretionary. Rather, it would be rules-based and respond to market signals. Discretionary release runs headlong into a classic time inconsistency problem in economics, whereby the policy approach results in a lagged impact that results in an inefficient use of the SPR, largely because market conditions have already begun to shift through other means," he said.
"Use of the SPR in a discretionary case would approach 'efficient' if it were released when there is a rapid increase in price alongside an expectation of a prolonged reduction in flow of oil through the Strait of Hormuz. A politically-motivated, but not necessarily economically efficient, release would typically occur if US gasoline prices start to rise," he added.
- Coordinated stock releases possible
Medlock said the effectiveness of any reserve release would depend on existing stock levels and spare production capacity, though a release by the US alone may have limited impact.
"However, if done through the coordinated response mechanism with IEA, it could be quite significant. It all depends on the size of the release and the degree to which oil exports from the Persian Gulf region are impeded," he said.
According to Medlock, strategic reserves held by the US, IEA members and China could help offset a supply disruption lasting several weeks, but their ability to contain price increases would weaken if the closure persists for longer.
In such a scenario, production increases from OPEC+ members outside the Persian Gulf and the role of Russian oil could become more significant, he noted.
"This is a geopolitically interesting outcome that bears watching. Demand-side policies could also enter the picture, but rationing is typically a mechanism of last resort," he noted.
In the event of a prolonged supply shock, coordinated releases among major consuming countries are quite likely, according to Medlock.
"In a prolonged oil market disruption, that is precisely what the SPR and IEA strategic stocks are meant for. There would also likely be efforts to coordinate with China given it very large current stockpile (about 120 days or so of cover)," he concluded.
By Ebru Sengul Cevrioglu
Anadolu Agency
energy@aa.com.tr
