The Group of Seven nations are increasingly likely to release strategic petroleum reserves to curb surging energy prices triggered by the war between the United States, Israel and Iran. A coordinated release of 300 million to 400 million barrels is under discussion and could be approved as early as this week.
G7 finance ministers said after a video conference on Wednesday that they are "prepared to take necessary measures to protect the global economy, including the release of strategic reserves," according to Reuters. France, which holds the G7 presidency, led the meeting where member nations reached full consensus on the need for a release with no significant disagreements, sources said.
Further discussions will follow on the specific volume and timing of the release. According to the Financial Times, the measure is being coordinated with the International Energy Agency and could be approved as early as Thursday. However, a final decision has not been made, and the timeline could slip to later this week pending consultations among G7 leaders.
The strategic petroleum reserve system was introduced when the IEA was established in 1974 to strengthen energy security following the 1973 oil crisis. Member nations currently hold approximately 1.2 billion barrels in reserves, while companies maintain an additional 600 million barrels under government mandates.
The United States has proposed releasing 300 million to 400 million barrels, representing roughly 25 to 30 percent of total reserves. This would match the scale of releases during Russia's 2022 invasion of Ukraine. "The U.S. had previously maintained that a strategic reserve release was unnecessary," the FT reported. "It has now fully reversed its position to support a coordinated release."
Meanwhile, sharp swings in energy prices from the war have prompted financial markets to bet on potential interest rate hikes by major central banks. Rate cut expectations that persisted since last year are being rapidly revised.
Markets now see the European Central Bank potentially raising its benchmark rate by at least 25 basis points this year. Previously, markets had priced in roughly a 50 percent chance of continued ECB rate cuts this year, but surging energy prices have shifted sentiment.
The Bank of England, which had been expected to cut rates by a total of 50 basis points in two moves this year, has seen those expectations weaken significantly. Some markets have begun pricing in the possibility of rate hikes next year. The Swiss National Bank, once considered a candidate for negative interest rate policies, now faces market expectations of a 25 basis point rate increase this year.
The shift reflects views that central banks will act more aggressively than in the past. Central banks faced criticism for responding too slowly to energy price surges during Russia's 2022 invasion of Ukraine, raising expectations they will take more proactive measures against inflationary pressures this time.
