Nick EdserAnd
Peter Hoskins,Economic journalists
Anadolu via Getty Images
G7 countries have said they are ready to take “necessary measures” to support global energy supplies after the US-Israeli war with Iran sent oil prices soaring.
However, a meeting of G7 finance ministers and the International Energy Agency (IEA) ended without agreement on the release of strategic crude reserves.
Oil prices rose to nearly $120 a barrel on Monday amid fears of a long supply disruption, before falling sharply again after President Trump expressed hope that the war would end soon.
During the virtual meeting, the option of releasing oil from stocks was one of several options discussed, with Fatih Birol, head of the IEA, saying that global oil markets “have deteriorated in recent days.”
Birol said: “In addition to the challenges of transiting the Strait of Hormuz, a substantial amount of oil production has been reduced. This creates significant and growing risks for the market.
“IEA member countries currently hold more than 1.2 billion barrels of public emergency oil stocks, and an additional 600 million barrels of industrial stocks are held under government obligation.”
After the meeting, French Finance Minister Roland Lescure said: “We are not there yet” on whether emergency stocks will be released.
If the reserves were released, it would be the first time since 2022, after Russia’s full-scale invasion of Ukraine.
In a statement after the meeting, the G7 said: “We are ready to take necessary measures, in particular to support global energy supplies, such as releasing stocks.”
Chancellor Rachel Reeves said on Monday that the UK had used the meeting to call for “immediate de-escalation” in the Middle East and ensure the safety of ships in the region.
“I am ready to support a coordinated release of the IEA’s collective oil reserves,” she added.
A major disruption to the region’s energy supply threatens to drive up prices for consumers and businesses around the world. Rising inflation could lead to fewer interest rate cuts from central banks.
About a fifth of the world’s oil supply usually passes through the Strait of Hormuz. But traffic in this narrow passage has virtually stopped since the war began more than a week ago.
The United States and Israel launched new waves of airstrikes on Iran over the weekend, hitting several targets, including oil depots.
Meanwhile, Iran has targeted the energy infrastructure of neighboring Gulf states. Overnight, Saudi Arabia said it had intercepted and destroyed two waves of drones heading towards a major oil field.
Last week, markets were relatively relaxed about the seemingly nightmare scenario of millions of barrels of crude oil and liquefied gas trapped in the Gulf.
But the weekend’s escalations, as well as the scenes of destruction of energy infrastructure in Iran and the Gulf countries, quickly scared the markets.
In Asia on Monday morning, the price of Brent crude jumped more than 25% to $119.50 a barrel at one point, before falling back below $90 after Trump told CBS that “the war is almost over.”
The US president has previously dismissed concerns about rising oil prices.
Sunday he published on its Truth Social platform: “Short-term oil prices, which will fall rapidly once the Iranian nuclear threat is destroyed, are a very small price to pay for the United States and the world, security and peace. ONLY FISCONS WILL THINK DIFFERENTLY!”
“The question everyone is asking is: how long will this conflict last?” Paul Gooden, head of natural resources at NinetyOne Asset Management, told the BBC’s Today programme.
“The longer this goes on, the more nervous the oil markets will be.”
He added that the price of oil could reach a level where “we see so-called demand destruction,” where consumers reduce their oil consumption, which he estimates at between $120 and $150 per barrel.
“I think temporarily we could see an oil price in this range. I don’t think it can stay there…at some point there will be a resolution.”
Gas prices have also jumped. UK gas prices for month-ahead delivery jumped almost 25% to 171p therm when trading began on Monday, before falling back to around 149p therm.
Gas prices have now almost doubled since before the start of the Iran war, although they remain well below the peak of 640p reached in 2022 after Russia’s invasion of Ukraine.
US stock markets opened lower but rebounded later in the day, with the S&P 500 closing up 0.8% and the Dow Jones Industrial Average ending the day up 0.5%.
London’s FTSE 100 index recovered to end the day down just 0.3%, after initially falling 1.86% to its lowest level in almost two months.
Oil giants were among the biggest risers in London, with Shell shares rising 2.4% on Monday and BP rising 1.9%.
Elsewhere, Germany’s benchmark Dax index fell 0.8% on Monday, while France’s CAC 40 ended the day down 1%.
Earlier, Japan’s Nikkei 225 index fell 5.2 percent, while South Korea’s Kospi index closed 6 percent lower.
The UK government’s borrowing costs have continued to rise as markets rethink the outlook for interest rates.
Before the conflict, rate cuts were expected this year, but given the expected impact of soaring oil prices on inflation, financial markets now believe there is a chance of a rate hike by the end of the year. The UK interest rate is currently 3.75%.
On Monday, the yield – or interest rate – on two-year government bonds, which indicates how much it would cost to borrow money over two years, rose to 4.09% from 3.88%.
The yield on benchmark 10-year bonds has now risen to 4.72%, up from around 4.3% before the conflict began.
Adnan Mazarei of the Peterson Institute for International Economics said the rise in oil prices was expected, given the shutdown of production in some Gulf countries and signs of prolonged conflict in the region.
“People realize this is not going to stop quickly,” he said, adding that assurance promises and targets set by the United States “are becoming more and more unrealistic.”
Additional reporting by Osmond Chia
