The G7 finance and energy ministers, joined by central bank governors, held a video conference Monday afternoon under the French presidency, marking the first such joint meeting in 50 years. According to multiple reports, France initiated the gathering to examine ways to stabilize energy markets amid the economic consequences of the war in Iran. G7 countries are increasing the number of urgent meetings as the conflict enters its second month, with expectations for concrete decisions from this session remaining low. It is not guaranteed the meeting will end with a joint statement.
The International Energy Agency has described the situation as the biggest supply disruption in the global oil market ever. Iran's blockade of the Strait of Hormuz has shut down the transit route for 20 million barrels of oil per day, a volume that typically represents a fifth of the world's shipments. Fears of attacks have all but stopped tanker traffic, forcing Gulf states like Kuwait and Iraq to cut production. Threats of Iranian missile and drone attacks have halted tankers from Saudi Arabia, Kuwait, Iraq, Qatar, Bahrain, the United Arab Emirates, and Iran.
Severe infrastructure damage is compounding the supply crisis. The war has put production facilities out of service for a long time, including Qatar's Ras Laffan LNG terminal, which was hit in an attack on March 18 with repairs estimated to take up to five years. Major oil producers like Iraq, Kuwait, and the U.A.E. have cut production as storage tanks fill due to reduced export ability. Iran, Israel, and the United States have attacked oil and gas facilities since the war started, with oil depots in Tehran smoldering following overnight strikes by Israel over the weekend. Bahrain accused Iran of striking a desalination plant vital to drinking water supplies, and Bahrain's national oil company declared force majeure for its shipments after an Iranian attack set its refinery complex ablaze.
This disruption has fueled exceptional price volatility. Brent crude oil rose to $119 per barrel, up from around $70 before the war, with prices on Monday morning in Asia jumping by more than 25% to touch $119.50 a barrel. Markets had been relatively relaxed about crude and gas trapped in the Gulf last week, but escalations over the weekend caused rapid fright. Prices partially calmed after the announcement of possible G7 intervention but remain high. A contradiction exists regarding recent price movements: while some reports indicate oil prices fell sharply after President Trump raised hopes the war would soon end, others note prices fell below $90 US per barrel around 3:30 p.m. ET without specifying a reason, highlighting uncertainty over market drivers.
The G7 agenda includes discussions on releasing strategic oil reserves and a possible oil price cap, with one option under study being the coordinated mobilization of strategic stocks. At a G7 meeting on Tuesday, countries opened up to turning on the taps to strategic oil reserves. However, G7 leaders have not agreed on any concrete step, such as a new release of oil reserves, reflecting a contradiction between agenda items and actual decisions. According to French finance minister Roland Lescure, the group is not yet ready to release emergency stocks.
This is the largest oil supply shock ever in economic terms.
Previous intervention has proven insufficient to stabilize markets. The IEA coordinated the release of 400 million barrels of oil on March 11 to mitigate the shortfall caused by the Hormuz blockage, but the release proved insufficient to address soaring oil prices. IEA member countries hold over 1.2 billion barrels of public emergency oil stocks, with a further 600 million barrels of industry stocks under government obligation. If reserves are released, it would be the first time since 2022 following Russia's invasion of Ukraine.
G7 foreign ministers have condemned attacks on energy infrastructure and called for an immediate stop to attacks against civilians and civilian infrastructure. The ministers underscored the importance of minimizing the conflict's impact on regional partners, civilian populations, and critical infrastructure, and reiterated the need to restore safe and toll-free freedom of navigation in the Strait of Hormuz. They condemned the Iranian regime's reckless attacks against civilians and civilian infrastructure, including energy infrastructure, in Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, the UAE, Jordan, and Iraq, and called for the immediate and unconditional cessation of all attacks. The ministers reaffirmed the importance of safeguarding maritime routes and the stability of energy markets, stating they are ready to take necessary measures to support global supply of energy.
Europe faces a deepening energy crisis amid limited alternatives. Gas storage in the euro area is below the historical average for the season, according to the ECB. Alternatives are very limited: Norwegian pipelines to Europe are full, the US is exporting LNG at max capacity, and Russian gas is politically excluded since the invasion of Ukraine. The European gas price on the TTF exchange has been 55–60 euros per megawatt-hour in the past month, five to six times higher than in the US, whereas before the war, the gap was normally three to four times.
The EU Commission is expected to present its own measures this week, possibly including state aid relief for affected industries and compensation linked to the EU emissions trading system. The European Commission maintains the bloc is mostly facing price volatility. Tuesday's meeting with energy ministers is aimed at taking stock of current reserves amid growing unpredictability, as LNG tankers en route to Europe have been diverted to Asia amid higher prices.
Analysts warn of potential for extreme price spikes. They say oil prices could jump to $200 amid unpredictable scenarios from the conflict and forecast natural gas prices could jump to 2022 energy crisis levels. Major disruption to energy supplies threatens to push up prices and inflation, potentially leading to fewer interest rate cuts. According to www.cbc.ca, Nicholas Mulder, an assistant professor at Cornell University, described this as the largest oil supply shock ever in economic terms, with roughly three to four times as many barrels of oil lost compared to the 1973 and 1979 oil crises.
Roughly three to four times as many barrels of oil are lost compared to the 1973 and 1979 oil crises.
Coordination among G7 members presents challenges due to differing interests and exposures to the crisis. Positions on responses, such as possible easing of sanctions to increase supply, could diverge. Monetary authorities are monitoring the situation cautiously, with some warning against hasty reactions. An EU official noted that prospects for an oil price cap are not yet there.
Recent strikes and threats continue to fuel instability. The U.S. and Israel launched fresh waves of airstrikes across Iran over the weekend, hitting multiple targets including oil depots. Saudi Arabia intercepted and destroyed two waves of drones heading towards a major oilfield overnight. These actions contribute to ongoing market fright and supply uncertainty.
Further diplomatic efforts are scheduled. Today's discussions will pave the way for an assessment by European energy ministers on Tuesday, with the virtual meeting coming one day before their scheduled discussion on supply security. G7 leaders will hold a video conference on Wednesday about the war in the Middle East and the energy situation, where they will discuss economic coordination, a key issue for an effective response. French President Emmanuel Macron, who is chairing Monday's meeting, gathered G7 leaders previously to discuss the impact on rising energy prices.
The broader economic impacts are spreading. There is fear that a protracted conflict could upend global supply chains as key commodities, including fertilizers, are trapped in the Strait of Hormuz. Asian economies, highly dependent on imports, are already heavily affected by rising costs. The conflict is in its second week with no end in sight, according to some reports, though others note it has entered its second month.
Critical unknowns remain, including what specific measures, if any, G7 countries will agree upon to stabilize energy markets and address supply disruptions. The duration of the Strait of Hormuz blockade and plans to restore safe navigation are unclear, as are the severity of damages to key infrastructure like Qatar's Ras Laffan LNG terminal and the timeline for repairs. The impact on global inflation and interest rates, and how central banks plan to respond, is also uncertain.
Reactions have been mixed. G7 energy and finance ministers said they are closely monitoring how the war is affecting energy and commodity markets, inflation, and economic stability, and are prepared to take any necessary measures to ensure energy market security and stability. EU technical experts in oil and gas have been meeting regularly to assess the severity of the situation. The decision to convene Monday's meeting was announced last week by Paris, reflecting escalating concern. According to the head of the IEA, Fatih Birol, global oil markets have deteriorated in recent days due to challenges in transit through the Strait of Hormuz and curtailed oil production.