Strait of Hormuz "Supply Cut" Becomes Oil Price's Achilles' Heel, IEA's 400 Million Barrel Release Fails to Quench Immediate Thirst

Financial Times Reporter | Liu Ting

The International Energy Agency (IEA) announced on March 11 that 32 member countries have unanimously agreed to release 400 million barrels of strategic oil reserves to address the global crude oil supply tightness. This is the largest release of reserves since the IEA’s founding in 1974. However, after the announcement, oil prices did not fall but instead rose, with Brent crude returning above $100 per barrel.

Analysts point out that although this release is claimed to be the largest in history, it still cannot fill the huge supply gap. Until the situation in the Middle East becomes clearer, oil prices are expected to remain high.

Since late February, when the US and Israel launched a military strike against Iran, international oil prices have surged significantly. On March 12, the close of the London Brent crude futures for May delivery rose 10.6%, to $101.75 per barrel, a 39% increase compared to the last trading day before the conflict (February 27). The New York Mercantile Exchange’s April delivery light crude futures rose 10.5%, to $96.39 per barrel, a 43% increase from the last trading day before the conflict.

Dong Xiucheng, Executive Dean of the China International Carbon Neutral Economy Research Institute at the University of International Business and Economics, told Jiemian News that the core reason the market is not buying the IEA member countries’ reserve release is that the supply gap is too large. The scale of the release is far from enough to offset the impacts caused by the blockade of the Strait of Hormuz, production disruptions in the Persian Gulf region, and current crude oil storage shortages.

“This can be understood on three levels. First, the supply gap is too large, and the reserve release is insufficient to fill it,” Dong said. The Strait of Hormuz, as the “throat” of global energy, accounts for 20%-30% of global maritime oil trade. Currently, this route is nearly paralyzed, with a daily supply shortfall of about 16-20 million barrels. Gulf oil-producing countries, with storage facilities nearing saturation, have been forced to cut production significantly. The 400 million barrels of reserves seem large, but the daily release rate is only 1.2-4 million barrels, enough to cover only a quarter to a fifth of the shortfall.

Second, the speed is too slow; distant water cannot quench immediate thirst. Dong pointed out that, for example, in the US, the promised release of 172 million barrels would take about 120 days to complete, and the earliest it could start arriving in the market is by the end of March, while the spot market is losing “blood” every day.

Third, the market’s concern is not “oil shortage” but “disruption + prolonged conflict.” Dong emphasized that the market’s pricing logic has shifted from “inventory levels” to “whether the Strait of Hormuz can stay open and whether the conflict will end.” The IEA’s announcement of the largest reserve release in history at this time has actually increased market panic. It signals to the market that even the IEA believes supply disruptions could last a long time.

“The signal from the IEA reserve release is more significant than its actual effect. What truly determines oil prices is whether the Strait of Hormuz remains open and the direction of Middle East conflicts,” Dong said. “As long as these two factors do not improve, oil prices are likely to continue high volatility or even spike.”

Huayuan Futures analyst Wang Wenhu also told Jiemian News that when the Strait of Hormuz will reopen and the direction of Middle East conflicts are key factors in determining oil prices. Until then, oil prices will continue to stay high.

He also pointed out that the reserve release news has already been priced in, and the IEA’s action now actually confirms the severity of the situation. “G7 countries started discussing releasing strategic oil reserves around March 9 and conveyed related messages to the market. Oil prices had already factored in this information. By the time the IEA officially announced, the positive effects had been exhausted,” Wang said. “The larger the release, the more it indicates that G7 countries expect the Iran conflict to escalate and the blockade of the Strait of Hormuz to last longer. Coupled with ongoing news of Iran laying mines and attacks on commercial ships, market fears of long-term supply disruptions in the Persian Gulf have intensified.”

The recent surge in oil prices is driven by the substantial supply shock caused by the actual blockade of the Strait of Hormuz. On Thursday evening (March 12), Beijing time, Iran’s Supreme Leader Ayatollah Khamenei issued his first statement, saying he would not give up revenge, and that the Strait of Hormuz would remain closed.

The IEA’s monthly report released on Thursday shows that the Strait of Hormuz, which once carried about 20 million barrels of crude oil and petroleum products daily, now has nearly zero flow. Gulf oil-producing countries, with storage facilities nearing saturation, have been forced to cut production sharply, with crude oil alone reducing output by about 8 million barrels per day. Including condensates and natural gas liquids, the total reduction is at least 10 million barrels per day, nearly 10% of global demand. The IEA has revised down its global oil supply growth forecast for 2026 from 2.4 million barrels per day to 1.1 million barrels per day.

Fitch’s research arm BMI told Jiemian News that during the early stages of the conflict, they analyzed three possible oil price scenarios: low ($75–$90/barrel), medium ($90–$110/barrel), and high ($110–$130+). Given the evolving conflict dynamics, actual prices could fluctuate within these ranges.

BMI noted that current developments suggest that, although the scale of supply disruption and infrastructure damage align with the medium-high scenario, the potential for rapid recovery of supply losses makes the situation more akin to the low scenario. Therefore, whether oil prices will fall back to $75 per barrel or spike to $130 by the end of March is roughly equally likely, depending on how long the conflict persists.

BMI leans toward the view that “the conflict is short-lived,” likely lasting about 2 to 4 weeks. Based on this, BMI expects Brent crude to fall back to around $66 per barrel in the second quarter.