G7 Agrees to Release 100 Million Barrels of Emergency Oil and Diesel Reserves to Combat Surging Prices

The Group of Seven countries has agreed to release 100 billion barrels of crude oil and diesel from emergency reserves over several months in an effort to reduce soaring energy prices after pressure from US President Donald Trump. The US and Israel’s war on Iran, as well as Russia’s war on Ukraine, have triggered a spike in global oil and diesel prices. Oil prices jumped on Thursday and settled up more than $4 a barrel. Global diesel prices also hit a record high last Friday with the average price for a gallon (3.79 litres) of diesel at $6.50, up from $5.61 a month earlier, according to the American Automobile Association (AAA).

In a statement on Thursday, G7, which includes the US, UK, Canada, Japan, Germany, Italy and France, with the EU also represented, said there will also be a “substantial diesel release within the first 20 days” and discussions over “additional diesel releases as necessary” will be held in the coming days.

After a video conference of G7 leaders chaired by French President Emmanuel Macron on Friday, the group said in a joint statement: “Taking into account commitments that have already been fulfilled, we will implement our commitments with a coordinated release through the IEA of 100 million barrels.” Earlier this week, the International Energy Agency’s (IEA) Executive Director Fatih Birol said that members had released about two-thirds of the 400-million-barrel agreement.

The G7 energy release will begin immediately and last for four months and will include a substantial diesel release for 20 days. It is not clear how many oil and diesel stocks each member of the group will release. “We will convene in the context of the IEA in the coming days to discuss the possibility of additional diesel releases as necessary,” the statement said. “We will coordinate maintenance schedules across G7 refineries to prevent simultaneous capacity shutdowns and temporarily increase utilization rates where feasible,” it added.

The G7 also urged member countries to refrain from imposing export restrictions on energy products among themselves. Earlier this week, the Trump administration had threatened to impose a ban on US diesel exports and also pressured Europe to release its emergency diesel stocks to help ease soaring diesel prices.

Former head of the International Energy Agency’s Oil Industry and Markets Division Neil Atkinson told Al Jazeera that there are three key factors contributing to the decline in global diesel supply. First, “there isn’t diesel coming out of the Middle East to Europe, and Europe took quite a lot of diesel from Saudi Arabia and from Kuwait.” Second, “Russia has now ceased to export diesel at all” due to “the attacks by Ukraine on Russian refineries”. “And China is no longer exporting diesel,” he added. “We’re in a situation where demand remains relatively high and is likely to stay high because of the agricultural harvesting season.”

According to data from the Joint Organizations Data Initiative (JODI) and the Organization of Petroleum Exporting Countries (OPEC), the United States is the world’s largest producer and exporter of diesel. It produces around 240.5 million tons and exports around 1.26 million barrels of diesel per day. Russia is the world’s second-largest exporter of diesel, supplying 783.4 thousand barrels per day to the global market. Saudi Arabia is the world’s second-largest producer of diesel at 58.4 million tons, but it consumes large portion of its diesel domestically.

After the G7 announcement, French President Macron said the group’s move to release the oil will “bring down the prices of petroleum products, particularly diesel.” The price of Brent crude oil briefly dropped below $100 a barrel after the G7 announcement, but rose to around $102 in the evening. Naeem Aslam, Chief investment Officer at Zaye Capital Markets, told Al Jazeera that the G7 energy release was “very much needed”, but noted that actual structural changes regarding stock releases and lifted bans remain crucial for the market.

Frederic Schneider, a nonresident senior fellow at the Middle East Council on Global Affairs, told Al Jazeera that high diesel prices act like a tax on production and logistics, risking stagflation by pushing up inflation while simultaneously squeezing margins in transport and agriculture.