The war of words between Washington and Iran about Tehran’s nuclear programme is boosting oil prices. The worry? That Israel launches a surprise attack and Iran retaliates shutting down the Strait of Hormuz, the gateway for Middle East oil.
While some say that the market is overreacting as importing countries would tap their strategic reserves to make up for any disruption, a close look at the problem shows that reserves in China and India remain low.
Western countries have the capacity to respond. The Paris-based International Energy Agency can offset, even briefly, the most extreme disruption tapping its strategic petroleum reserves. If drawn down at the maximum drawdown rate technically possible in each of the IEA member countries, the organisation can deliver an average of 10.4m barrels a day of crude oil and an additional 4m b/d of refined products in the first month.