"Oil panic," here we go again.

On March 11, local time, the International Energy Agency convened an emergency meeting of energy officials from its member countries. Thirty-two member states officially agreed to release a total of approximately 400 million barrels of strategic petroleum reserves, marking the agency’s largest joint reserve release in its history.

The preliminary plans announced so far show that many countries have declared or are preparing to implement specific measures. Japan announced a release of about 80 million barrels, Germany announced 19.5 million barrels, the UK announced 13.5 million barrels, France plans to release 14.5 million barrels, and the United States stated it will utilize part of its strategic petroleum reserves to stabilize market fluctuations. Some European countries have proposed reducing short-term oil consumption through energy-saving measures and demand management policies.

However, these reserve releases have not altered the market’s core expectations of supply shocks. UBS commodity analyst Giovanni Staunovo said that current oil price fluctuations mainly reflect geopolitical risk premiums, with markets paying more attention to transportation risks in the Strait of Hormuz rather than the releases themselves.

On March 11, the international crude oil market showed overall volatility. Brent crude maintained around $90 per barrel, West Texas Intermediate (WTI) traded near $86, and Dubai crude, the Asian benchmark, hovered around $88. Overall, the day’s international oil price range was between 3% and 5%, with the market in a clearly high-volatility state. Compared to previous sharp price swings, there has been no significant unilateral surge.

On March 11, 2026, in the Strait of Hormuz, Iran, a Thai-flagged vessel, “Mayuree Naree,” was struck by an Iranian missile and caught fire. Photo / Visual China

Why Release Strategic Petroleum Reserves?

Recently, tensions in the Middle East have suddenly escalated, with military conflicts rapidly expanding between Israel, the US, and Iran. The Strait of Hormuz, a critical global energy transit route, is shrouded in conflict clouds.

On March 9, in response to chain reactions in energy and financial markets, G7 finance ministers held an emergency video conference to discuss whether to coordinate the release of strategic petroleum reserves through the IEA to stabilize markets. At that time, the meeting only stated that they were “evaluating policy tools, including reserve releases,” without making an immediate decision.

Historical experience shows that a 10% increase in oil prices typically raises global inflation by about 0.3 to 0.4 percentage points. If energy prices continue to rise, global inflation could face renewed upward pressure.

Against this backdrop, the G7 finance ministers’ discussion on coordinated reserve releases appears to be an energy policy response triggered by geopolitical crises. Notably, the meeting was not led by energy ministers but was directly chaired by finance ministers. The main goal was to decide on signals that could increase crude oil supply—such as releasing reserves—to influence market expectations and stabilize international oil prices. Maintaining oil prices within a reasonable range would directly impact the G7’s ability to keep domestic inflation and monetary policy stable.

This meeting also reflects a shift in the role of energy issues within the global macroeconomic landscape. The current G7 discussions around oil prices and strategic reserves are a microcosm of the long-term evolution of the global energy system. From the strategic petroleum reserve mechanisms established after the 1970s oil crises, to the deep integration of oil prices with the US dollar financial system, and more recently, to the regionalization of global energy trade patterns, these factors combined mean that geopolitical conflicts can quickly translate into variables affecting global inflation, financial markets, and macroeconomic policies.

Lessons from the 1973 Oil Crisis

The modern foundation of global energy security policies can be traced back to the oil crisis following the Fourth Middle East War (also known as the Yom Kippur War).

In October 1973, the Fourth Middle East War broke out. The Arab OPEC announced an oil embargo against countries supporting Israel and sharply cut oil production. Within months, international oil prices surged from about $3 per barrel to over $12. For Western industrialized countries at the time, this shock was almost unprecedented.

That year, US energy prices rose rapidly, pushing up overall price levels. The Consumer Price Index (CPI) increased from about 3.4% in 1972 to roughly 11% in 1974, marking the most severe postwar inflation. Gasoline rationing appeared at US gas stations, with signs reading “Limit 10 gallons per customer,” and some states implemented odd-even license plate restrictions. About one-third of US oil consumption was imported, with Japan and Europe even more dependent. The surge in oil prices triggered a combination of soaring inflation and economic recession—what was then called “stagflation”—leading to a major shift in US energy policy and the establishment of the strategic petroleum reserve.

In 1974, to prevent similar shocks, the US promoted the creation of the International Energy Agency (IEA). Member countries committed to establishing national oil reserves and coordinating emergency releases. This required members to hold oil stocks equivalent to at least 90 days of net imports.

Initially, this system was designed solely to ensure supply security. The logic was straightforward: in case of localized war or transportation disruptions, countries could release reserves to fill the gap. Over time, however, the system evolved. For example, after the 2011 Libyan conflict, the IEA coordinated the release of about 60 million barrels. Following the Russia-Ukraine conflict in 2022, the US released over 180 million barrels of strategic reserves—one of the largest releases in history. In these cases, supply was not fully interrupted, but countries released reserves to stabilize market expectations.

In an environment of high debt and high interest rates, oil price volatility has become a key variable influencing macroeconomic policy. This explains why today, discussions about strategic reserves are often led not by energy ministers but by finance ministers and macroeconomic policymakers.

The “Recycling” of Oil Dollars

The rapid influence of oil prices on the global financial system mainly stems from the “oil dollar recycling” mechanism.

In 1971, the US announced the dollar’s decoupling from gold, leading to the collapse of the Bretton Woods system. With the end of fixed exchange rates, the dollar needed a new global demand-driven asset to maintain its central role in the international financial system. Energy prices became one of the most important variables in global economic operations.

Against this background, the US and major oil-producing countries like Saudi Arabia gradually formed a series of security and financial cooperation arrangements. Oil trade continued to be priced in dollars, and the dollar income earned by oil-exporting countries was used to buy US Treasuries and other dollar-denominated assets, flowing back into US capital markets. This cycle, known as “oil dollar recycling,” reinforced the dollar’s dominance and tightly linked oil prices with global capital markets. Fluctuations in energy prices no longer only reflected supply and demand but also quickly transmitted through financial markets, affecting the entire global economy.

In March 1983, OPEC held a ministerial meeting in London. At that time, the global oil market was oversupplied due to declining demand and increased non-OPEC production, putting downward pressure on prices. After two oil crises, Western countries had aggressively promoted energy conservation, weakening demand. This was the first time OPEC established a unified pricing system and used quota policies to maintain prices. However, fierce competition among members led some to overproduce, challenging the quota system. By 1986, oil prices collapsed, and OPEC’s pricing system was broken by market forces.

Entering the 21st century, financialization became another profound change in the oil market. With the development of commodity futures markets, oil gradually transformed from a traditional energy commodity into an important financial asset. Pension funds, hedge funds, and investment banks incorporated oil futures into their asset allocations, creating a closer link between energy markets and global capital markets.

Financialization also altered the price formation mechanism. In traditional markets, prices are mainly determined by supply and demand. In financialized markets, prices include significant risk premiums, such as geopolitical risks, transportation risks, and policy uncertainties. Even if actual supply remains unchanged, these factors are quickly reflected in futures prices through market expectations. The recent sharp price swings exemplify this mechanism.

Interestingly, while spot prices have fluctuated wildly, long-term futures prices have remained relatively stable. For example, when Brent crude surged to $119, the 2026 distant-month futures contract stayed around $85–$90, and the 2027–2028 long-term futures prices hovered around $75–$80. This “short-term spike, long-term stability” structure indicates that current price increases are driven more by short-term geopolitical risks than by long-term supply-demand fundamentals.

Immediate Signals of Global Risks

When Middle East tensions escalate, the market’s concern is often not just the production capacity of oil-producing countries but also the security of energy transportation routes. If shipping through the Strait of Hormuz is blocked, market expectations about energy supply will change rapidly, and futures markets will price in this risk in advance, causing short-term price volatility. Oil prices increasingly resemble a financial asset that prices global risks, reflecting complex interactions between geopolitical events and market expectations.

Recently, EU officials suggested strengthening enforcement of the G7’s Russian oil price cap. They believe that even if Russian crude is discounted relative to Brent, its export revenue could still rise, weakening the policy of limiting Russia’s fiscal income by controlling unit prices. Data shows Russia’s 2026 fiscal budget assumes an oil price of about $59 per barrel, while early March Urals crude traded around $46, below the budget estimate.

Senior energy strategist and retired vice president of Singapore’s Golden Eagle Group China, Yang Hanfeng, noted that the current international oil pricing mechanism relies on benchmark prices. About 60% of global oil trade uses Brent futures as a benchmark, North America mainly references WTI futures, and Middle Eastern exports to Asia are priced based on Dubai/Oman spot prices. These benchmarks are formed through trading activities on major futures exchanges in New York, London, and elsewhere. The actual oil price is determined by a “benchmark + premium/discount” model, where buyers and sellers negotiate a differential based on oil quality (density, sulfur content), delivery location, freight, and short-term market conditions.

For a long time, the international oil market was viewed as a highly integrated global market. However, over the past decade, the operation of the global energy system has undergone significant changes, with increasingly divergent prices among different regions under a common benchmark.

This shift became especially evident after the Russia-Ukraine conflict. In 2022, Western sanctions on Russian energy exports caused Russian oil prices to diverge from traditional international benchmarks. For example, Urals crude traded in 2023–2024 at a $20–$30 discount per barrel compared to Brent. When Brent stayed around $85–$90, Urals was only $60–$65. Similar discounts appeared for sanctioned countries: Iranian oil in Asia often sold at $10–$15 below Brent, and Venezuelan heavy crude sometimes discounted over $30.

Meanwhile, the US shale revolution reshaped North American energy. US oil production grew from about 5 million barrels per day in 2008 to over 12 million today, making North America one of the world’s key energy suppliers. Europe, after the Russia-Ukraine conflict, sharply reduced Russian imports and turned to global LNG markets. Asia, including China, Japan, and South Korea, remains highly dependent on Middle Eastern energy shipments.

Driven by these structural changes, the global energy system is gradually evolving into a multi-regional market with distinct regional price structures under a common benchmark. North America benefits from local resources and infrastructure, maintaining relatively stable prices; Europe’s energy transition and supply security concerns embed higher risk premiums; Asia’s large manufacturing base and high reliance on maritime transport make it especially sensitive to Middle Eastern geopolitical shifts.

Thus, when Middle East tensions rise, regional price divergences under a unified benchmark become more pronounced. When a narrow strait can influence global financial markets, oil prices are no longer just energy prices but immediate signals of world risks.

(Author: Research Fellow at the Asia and Africa Institute, University of London)

Author: Xue Zijing

Editor: Xu Fangqing