Iran War Sparks Global Rush to Build Oil Reserves: What Investors and Businesses Need to Know
LONDON — Countries that suffered significant economic losses during the recent Iran conflict are now striving to build domestic oil and gas storage buffers to withstand future disruptions. This effort could generate demand for approximately half a billion additional barrels of oil.
The near-total closure of the Strait of Hormuz, which cut off about 20% of global oil and liquefied natural gas (LNG) supplies for over three months, triggered major shifts in energy markets and pushed Brent crude prices close to $120 per barrel. However, the situation could have been far worse without the critical stabilizing effect of emergency reserves.
At the conflict’s outset, all 32 members of the International Energy Agency (IEA) coordinated a historic release of 400 million barrels from strategic petroleum reserves (SPRs), led primarily by the United States. This marked the sixth drawdown since the IEA’s formation and underscored a strategy established after the 1973 Arab Oil Embargo, requiring members to maintain emergency stocks equal to at least 90 days of net imports.
China, although not a full IEA member, demonstrated the value of strategic reserves by relying on its stockpile—believed to be the largest globally at over one billion barrels—to reduce crude imports by more than a third during the conflict. This approach saved China billions of dollars and shielded its economy amid soaring prices, whereas many Asian countries, including India, Pakistan, and Thailand, faced severe economic pressure due to limited domestic reserves.
Countries lacking substantial emergency stockpiles resorted to subsidies, fuel rationing, reduced work hours, and other austerity measures to limit consumption. As a result, many vulnerable importers are now likely to expand their SPRs where financially possible, while others may instead focus on enhancing demand reduction strategies.
India, the world’s most populous country and a major oil and liquefied petroleum gas importer, is notably underprepared. Its current reserves cover just eight days of imports—far below the IEA’s 90-day benchmark—requiring an estimated 400 million additional barrels at a cost of about $28 billion. India has recently moved toward increasing its emergency storage, commissioning the Oil and Natural Gas Corporation to develop a 1.75 million-tonne (nearly 13 million barrels) reserve, potentially boosting capacity by one-third.
Similarly, Pakistan, reliant on the Middle East for around 90% of its oil and LNG imports before the conflict, is seeking to expand its domestic storage by approximately 35 million barrels to meet the 90-day target. Australia, the only full IEA member previously falling short of SPR requirements, has pledged $7 billion to secure at least 50 days of fuel reserves. Other nations, including the major Asian refining hub Singapore, are also exploring ways to build or expand strategic oil and gas storage.
Europe, with an established gas storage infrastructure to manage seasonal fluctuations, may also increase government-controlled storage amid its growing LNG imports—which now constitute over 40% of the region’s gas supply, with more than 60% sourced from the U.S.
Even oil-producing nations are adapting. Gulf national oil companies are investing in storage facilities outside the region to maintain export flexibility during crises. Saudi Aramco already operates reserves in Japan, South Korea, Egypt, and northwest Europe and is considering further expansion.
Collectively, these storage initiatives could demand an additional 500 million barrels of crude and refined products. Given that 400 million barrels have already been withdrawn from global inventories since the conflict began, with further drawdowns expected even after the Strait of Hormuz reopens, total incremental demand could reach approximately one billion barrels over the coming years. This heightened demand is likely to support prices, although the International Energy Agency anticipates a substantial supply increase next year as Middle Eastern production recovers, potentially outpacing demand by more than four million barrels per day, which may temper price spikes.
However, the outlook depends on how swiftly Gulf oil supply rebounds. Any delays due to logistical issues or instability in the region’s fragile power dynamics could tighten markets once again.
In the longer term, the global push to boost strategic reserves could increase market resilience to disruptions and help stabilize prices. Larger stockpiles might enable countries like India to reduce crude purchases during tight supply periods, similarly to China’s strategy, mitigating future price surges.
As the crisis surrounding the Strait of Hormuz recedes, the key lesson for importers is clear: severe and prolonged disruptions, previously deemed unlikely, can occur and disproportionately impact those without adequate emergency buffers.
(Article by Ron Bousso, Reuters columnist.)
Special Analysis by Omanet | Navigate Oman’s Market
The global push to build substantial strategic petroleum reserves (SPRs) represents a critical shift toward energy security, especially for countries vulnerable to supply disruptions like Oman’s regional neighbors. For Omani businesses and investors, this trend signals opportunities in expanding oil and gas storage infrastructure, logistics, and export flexibility, potentially positioning Oman as a regional energy hub. Smart investors should consider the long-term resilience benefits and price stabilization SPRs may bring, while entrepreneurs might explore ventures in storage technologies and strategic energy partnerships.
