G7 to take ‘necessary measures’ to support energy supplies
G7 to Take ‘Necessary Measures’ to Support Energy Supplies
Following the US-Israel conflict with Iran, G7 countries have pledged to act swiftly to stabilize global energy markets, stating they are prepared to implement ‘essential actions’ to ensure continuous fuel supply. However, the recent virtual gathering of G7 finance ministers and the International Energy Agency (IEA) concluded without a consensus on releasing strategic oil reserves, despite rising concerns over supply disruptions.
Oil prices peaked at nearly $120 per barrel on Monday, driven by fears of prolonged supply interruptions, before plummeting after President Trump signaled optimism that the conflict would soon resolve. During the meeting, IEA director Fatih Birol emphasized that global oil markets had recently experienced a sharp decline, citing challenges in transporting oil through the Strait of Hormuz and reduced production levels as key factors.
“In addition to the challenges of transit through the Strait of Hormuz, a substantial amount of oil production has been curtailed. This is creating significant and growing risks for the market,” Birol noted.
IEA members currently possess over 1.2 billion barrels of public emergency oil reserves, with an additional 600 million barrels held under government authority. French Finance Minister Roland Lescure remarked that “we are not there yet” regarding the decision to tap these reserves, which would mark the first such release since Russia’s invasion of Ukraine in 2022.
UK Chancellor Rachel Reeves highlighted the meeting’s focus on urging immediate calm in the Middle East and ensuring maritime security in the region. She added that the UK was open to a coordinated release of IEA oil stocks if needed. The ongoing hostilities have disrupted a fifth of the world’s oil flow through the Strait of Hormuz, which has seen nearly all traffic cease since the conflict began a week ago.
Over the weekend, the US and Israel intensified airstrikes against Iranian targets, including oil facilities, while Iran retaliated by striking energy infrastructure in nearby Gulf nations. Saudi Arabia reported intercepting and neutralizing two drone waves targeting a key oil field. These developments triggered rapid market reactions, with Brent crude prices surging over 25% to $119.50 a barrel before retracting to below $90 after Trump claimed the war was “very complete, pretty much.”
Gas prices also saw a sharp rise, with UK month-ahead delivery costs for natural gas increasing nearly 25% to 171p per therm at the start of the week. By later in the day, prices had eased to around 149p per therm, though they remain nearly double their pre-war levels. This follows the 640p peak recorded in 2022 after Russia’s invasion of Ukraine, which had a similar effect on energy markets.
Financial markets responded to the tensions, with US indices opening lower and the FTSE 100 index recovering slightly to end the day with a minimal decline. Analysts warn that prolonged conflict could lead to inflationary pressures, potentially limiting central banks’ ability to cut interest rates. Paul Gooden of NinetyOne Asset Management stressed the uncertainty surrounding the conflict’s duration, suggesting that extended hostilities might push oil prices to $120-$150 per barrel, where demand could start to shrink.
