The G7 will release 100 million barrels of oil and diesel, will this slow down prices? | US-Israeli war against Iran

Group of Seven (G7) countries have agreed to release 100 billion barrels of crude oil and diesel from their emergency reserves over several months in a bid to curb soaring energy prices, following pressure from US President Donald Trump.

The US-Israeli war against Iran, as well as Russia’s war against Ukraine, have triggered a surge in global oil and diesel prices.

“The emergency release by G7 members will put some downward pressure on prices, particularly on global diesel prices. However, the impact would be short-lived given that it is only a temporary solution to the supply crisis,” Hamad Hussain, climate and commodities economist at Capital Economics, told Al Jazeera.

Oil prices jumped on Thursday and stabilized at more than $4 a barrel. Global diesel prices also hit a record high last Friday, with the average price of a gallon (3.79 liters) of diesel at $6.50, up from $5.61 a month earlier, according to the American Automobile Association (AAA).

In a statement released Thursday, the G7, which includes Canada, France, Germany, Italy, Japan, the United Kingdom and the United States, with the European Union also represented, said there would also be a “substantial release of diesel in the first 20 days” and that discussions on “additional diesel releases if necessary” would take place in the coming days.

Will the G7 energy liberation stabilize the global energy market?

Here’s what we know:

What did the G7 announce?

After a video conference of G7 leaders chaired by French President Emmanuel Macron on Friday, the group said in a joint statement: “Given the commitments already fulfilled, we will implement our commitments with a coordinated release via the IEA of 100 million barrels.”

Earlier this week, International Energy Agency (IEA) Executive Director Fatih Birol said members had released about two-thirds of the 400 million barrel deal.

The G7 power release will begin immediately and last for four months and include a substantial diesel release for 20 days. It is unclear how much oil and diesel stockpile each member of the group will release.

“We will meet under the IEA in the coming days to discuss the possibility of additional diesel releases if necessary,” the statement said.

“We will coordinate maintenance schedules at G7 refineries to avoid simultaneous capacity shutdowns and temporarily increase utilization rates where possible,” he added.

The G7 also urged member countries to refrain from imposing restrictions on the export of energy products among themselves.

Earlier this week, the Trump administration threatened to impose a ban on U.S. diesel exports and also pressured Europe to release its emergency diesel stocks to help ease soaring diesel prices.

Why are oil and diesel prices so high?

Global energy prices have soared due to the US-Israeli war against Iran, which has disrupted Gulf energy exports. Meanwhile, Ukrainian attacks on Russian energy facilities have also disrupted global energy supplies.

Former head of the International Energy Agency’s Petroleum Industry and Markets Division, Neil Atkinson, told Al Jazeera that three key factors are contributing to the decline in global diesel supply.

First, “there is no diesel coming from the Middle East to Europe, and Europe has imported a large amount of diesel from Saudi Arabia and Kuwait.”

Second, “Russia has now stopped exporting diesel” due to “Ukraine’s attacks on Russian refineries.”

“And China no longer exports diesel,” he added.

“We are in a situation where demand remains relatively high and will likely remain so due to the agricultural harvest season.”

According to data from the Joint Organizations Data Initiative (JODI) and the Organization of the Petroleum Exporting Countries (OPEC), the United States is the world’s largest producer and exporter of diesel. It produces around 240.5 million tonnes and exports around 1.26 million barrels of diesel per day.

Russia is the world’s second largest exporter of diesel, supplying 783,400 barrels per day (bpd) to the global market. Saudi Arabia is the world’s second largest producer of diesel at 58.4 million tonnes, but it consumes much of its diesel domestically.

Will the G7 publication on energy lower prices?

After the G7 announcement, French President Macron, who co-chaired the meeting, said the group’s decision to disclose oil would “lower the prices of petroleum products, particularly diesel.”

The price of Brent crude, the international benchmark, briefly fell below $100 a barrel after the G7 announcement, but rose back to around $102 in the evening.

Naeem Aslam, chief investment officer at Zaye Capital Markets, told Al Jazeera that the G7 energy release was “absolutely necessary”, but that the group’s announcement was simply aimed at easing pressure on the energy market.

“Changes in the current structure regarding who will release (energy stocks) and what and where bans will be lifted, remain an important element in terms of the market,” he said.

Aslam added that by Sunday evening, especially before the markets open, the additional pressure on energy prices will disappear. “But starting Monday morning… we could potentially see a market reversal,” he added.

Atkinson, the energy expert, said the G7 fuel release is welcome but “does not solve the fundamental problem that global supply remains below normal.”

Atkinson told Al Jazeera that “seven months after the start of this war in the Middle East, we are still in a situation where the global supply of crude oil or crude oil products remains significantly below pre-war levels.”

“We are now in a situation where the focus is on the end use of products, mainly diesel, and that is what we are talking about here,” he added.

What did Trump say?

Soaring diesel prices have been a source of tension for the Trump administration and Republicans who fear it could cost them votes in the upcoming November midterm elections.

Last week, Trump pressured Ukraine to stop attacking Russian diesel facilities amid the war.

Then, on Thursday this week, the US president told reporters that his administration “may” ask European countries to release their diesel stocks, shortly after Treasury Secretary Scott Bessent urged Europe to “immediately” dip into its reserves.

Trump also threatened to ban U.S. diesel exports if Europe did not release its emergency diesel stocks.

But on Friday, Trump told reporters at the White House that Washington would not impose a ban on diesel exports. He said the plan was never really on the table.

“Europe has a lot of diesel, and they’re going to make a major global contribution, and so are we. And we’re not going to impose an export ban. We’re going to do what we’re supposed to do,” Trump said.

“Trump is spooked by diesel prices above $6, which is up 70 percent from before the war began. This is likely to get worse with U.S. diesel inventories at their lowest seasonal level since records began in 1982.

“So if there is not enough diesel produced due to the US-Israeli war against Iran, and diesel reserves have been exhausted, the only way to bring more diesel to the US market is to export less,” Frédéric Schneider, non-resident senior fellow at the Middle East Global Affairs Council, told Al Jazeera on Friday.

After the G7 announcement, Trump wrote on his Truth Social platform: “Europe has just agreed to release a massive amount of its heavily stockpiled diesel fuel. The process will begin immediately.”

The White House is also reportedly preparing an executive order aimed at tackling record diesel prices in the United States, which could be unveiled as early as next week, two people familiar with the process told the Reuters news agency.

Schneider noted that countries are also concerned about high energy prices because diesel and gasoline are important to the economy and serve different roles.

“While gasoline powers cars, diesel powers everything from trucks, freight trains, ships, tractors, harvesters, construction equipment, mining equipment, and backup generators. This means gasoline is used more by consumers while diesel is primarily used by producers, meaning a diesel price shock trickles down to the price of almost everything else, especially food, construction materials, and anything delivered by truck,” he added.

Farmers are doubly hit as diesel prices rise alongside fertilizer prices, both pushed up by the closure of the Strait of Hormuz.

“A higher diesel price therefore acts as a tax on production and logistics, while higher gasoline prices act as a direct tax on consumers. Like higher gasoline prices, higher diesel prices risk stagflation by increasing inflation while simultaneously reducing margins in transportation and agriculture, meaning that central banks find themselves (themselves) in a dilemma between cutting rates (helping producers) and raising rates (reducing inflation),” he said.