G7 nations have said they are ready to take “necessary measures” to support the global supply of energy after the US-Israel war with Iran sent oil prices surging.
However, a meeting of G7 finance ministers and the International Energy Agency (IEA) ended without an agreement to release strategic crude reserves.
The oil price reached nearly $120 a barrel on Monday over fears of a lengthy disruption to supplies, leading to global stock markets falling.
At the virtual meeting, the option of releasing oil from stockpiles was one of several discussed as Fatih Birol, head of the IEA, said global oil markets “have deteriorated in recent days”.
Birol said: “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.
“IEA member countries currently hold over 1.2 billion barrels of public emergency oil stocks, with a further 600 million barrels of industry stocks held under government obligation.”
Following the meeting, French finance minister Roland Lescure said, “we are not there yet,” on the question of whether emergency stocks will be released.
If reserves are released it would be the first time since 2022 following Russia’s full-scale invasion of Ukraine.
In a statement following the meeting, the G7 said: “We stand ready to take necessary measures, including to support global supply of energy such as stockpile release.”
Major disruption to energy supplies from the region threatens to push up prices for consumers and businesses around the world. Rising inflation could lead to fewer interest rate cuts by central banks.
About a fifth of the world’s oil supply is usually shipped through the Strait of Hormuz. But traffic through the narrow passage has all but halted since the war started more than a week ago.
The US and Israel launched fresh waves of airstrikes across Iran over the weekend, hitting multiple targets including oil depots.
Meanwhile, Iran targeted energy infrastructure in neighbouring Gulf states. Overnight, Saudi Arabia said it had intercepted and destroyed two waves of drones heading towards a major oilfield.
Last week the markets had been relatively relaxed about the seemingly nightmare scenario of millions of barrels of crude and liquefied gas trapped in the Gulf.
But the escalations over the weekend, alongside scenes of destruction of energy infrastructure both in Iran and across the Gulf, saw the markets take rapid fright.
On Monday morning in Asia, the price of Brent crude jumped by more than 25% to touch $119.50 a barrel at one point before falling back to around $102.
US West Texas Intermediate (WTI) crude saw similar movements and was trading at about $101 a barrel.
US President Donald Trump has repeatedly dismissed concerns about rising oil prices.
On Sunday, he posted on his Truth Social platform: “Short term oil prices, which will drop rapidly when the destruction of the Iran nuclear threat is over, is a very small price to pay for U.S.A., and World, Safety and Peace. ONLY FOOLS WOULD THINK DIFFERENTLY!”
Gas prices also jumped. UK gas prices for month-ahead delivery surged by nearly 25% to 171p a therm when trading started on Monday, before slipping back to about 149p a therm.
Gas prices have now almost doubled since before the war in Iran began, although they remain well below the 640p peak reached in 2022 following Russia’s invasion of Ukraine.
US stock markets opened lower, with the S&P 500 and Dow Jones Industrial Average both down by about 1.4% in opening trading.
In Europe, Germany’s Dax index dropped 1.3% while France’s Cac 40 fell 1.8%.
London’s FTSE 100 fell to its lowest level for nearly two months, but the rise in oil prices lifted shares in energy giants BP and Shell.
Earlier, Japan’s Nikkei 225 index had dropped 5.2%, while South Korea’s Kospi index closed down 6%.
UK government borrowing costs have continued to rise as markets rethink the prospects for interest rates.
Before the conflict, rate cuts had been expected this year but given the expected impact of the oil price surge on inflation financial markets now think there is a chance of a rate rise 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 for two years, rose to 4.09% from 3.87%.
The yield on benchmark 10-year bonds has now risen to 4.73%, up from a rate of about 4.3% before the conflict began.