Iran War Triggers Global Rush to Build Strategic Oil Reserves
LONDON – In the wake of the Iran war, nations that faced significant economic repercussions are now prioritizing the establishment of domestic oil and gas storage facilities. This initiative could potentially generate an additional demand of approximately half a billion barrels.
The conflict led to the near-total closure of the Strait of Hormuz, disrupting about 20% of global oil and liquefied natural gas supplies for over three months. This situation reshaped energy markets and propelled Brent crude prices to nearly $120 per barrel. However, the impact could have been more severe without the strategic response from global reserves.
In the early stages of the conflict, all 32 members of the International Energy Agency (IEA) collectively agreed to a historic release of 400 million barrels from strategic petroleum reserves (SPRs), with the United States contributing the largest share. This drawdown marked the sixth since the IEA’s inception and reaffirmed a strategy established post-1973 Arab Oil Embargo, which mandates IEA members to maintain emergency stocks equivalent to at least 90 days of net imports.
China’s actions during this period provided additional insights. Although not a full IEA member, China has developed what is believed to be the world’s largest SPR, with over a billion barrels in reserve. During the conflict, China reduced its crude purchases by more than a third, signaling its readiness to utilize its stockpile. This strategic withdrawal from the market during a time of high prices saved China billions and insulated it from the economic turmoil affecting other Asian nations reliant on Middle Eastern energy imports.
Countries like India, Pakistan, and Thailand experienced acute economic distress due to their limited domestic reserves. Faced with insufficient emergency stockpiles, these governments resorted to subsidies, fuel restrictions, and other austerity measures to manage consumption.
The Rush for Strategic Reserves
India’s need for larger strategic reserves is particularly pressing. As the world’s most populous nation and the third-largest oil importer, India is projected to be the primary driver of global oil demand growth through 2030, according to the IEA. However, India is not a full IEA member and did not participate in the coordinated reserve release during the conflict. Currently, its reserves cover only eight days of imports; meeting the IEA’s 90-day standard would necessitate an additional 400 million barrels, costing approximately $28 billion at $70 per barrel.
Reports indicate that New Delhi is moving towards this goal, instructing the Oil and Natural Gas Corporation to establish a 1.75 million-tonne reserve, which could enhance India’s emergency storage capacity by about one-third.
Pakistan finds itself in a similar predicament, having relied on the Middle East for around 90% of its oil and LNG imports before the conflict. The country is now looking to bolster its domestic storage capabilities, with plans to build reserves equivalent to 90 days of imports, requiring approximately 35 million additional barrels.
Australia, the only full IEA member that has consistently failed to meet the agency’s SPR requirements, has announced plans to invest $7 billion to maintain at least 50 days of fuel reserves. Other nations, including Singapore, Asia’s leading oil-refining hub, are also contemplating the construction or expansion of strategic oil and gas storage facilities.
European and Gulf Responses
Europe already possesses a comprehensive gas storage system designed to manage seasonal demand, particularly during winter. However, with imported LNG now constituting over 40% of its gas supply—more than 60% of which comes from the United States—the region may consider establishing additional government-controlled storage.
Even energy-producing nations are adapting. Gulf national oil companies are exploring options for increased storage outside their regions to maintain export flexibility during crises. Saudi Aramco, which operates storage facilities in Japan, South Korea, Egypt, and northwest Europe, has indicated potential plans for further expansion.
Implications for Oil Prices
Collectively, these new storage initiatives could necessitate around 500 million barrels of crude and refined products, based on return on investment calculations. Additionally, inventories that have been depleted will require replenishment. The IEA estimates that approximately 400 million barrels have already been withdrawn from global stocks since the onset of the conflict, with further draws likely continuing through the summer, even after the Strait of Hormuz reopens.
In total, this situation could translate to nearly 1 billion barrels of additional demand. Even if this demand is spread over several years, it is expected to provide substantial support for oil prices.
The timing may be advantageous, as the IEA forecasts a surge in global oil supply next year, driven by a recovery in Middle Eastern production that could exceed demand by more than 4 million barrels per day. Consequently, even a significant increase in storage-driven demand may not lead to soaring crude prices.
However, this outlook could change if Gulf supply recovers more slowly than anticipated due to logistical challenges or instability in the region’s delicate power dynamics.
The long-term effects of this heightened demand for strategic reserves are complex. A world with significantly larger reserves may exhibit greater resilience to shocks, potentially stabilizing prices over time. Countries such as India might reduce their purchases during periods of tight supply, similar to China’s approach, which could help mitigate price spikes.
As the immediate impacts of the Hormuz crisis diminish, the key takeaway for importers is clear: unforeseen disruptions can occur, last longer than expected, and have the most severe effects where there is no buffer.
Source: www.zawya.com
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Published on 2026-06-23 07:26:00 • By the Editorial Desk
