The Group of Seven countries has agreed to release 100 billion barrels of crude oil and diesel from emergency reserves over several months in an effort to reduce soaring energy prices after pressure from US President Donald Trump.
The US and Israel’s war on Iran, as well as Russia’s war on Ukraine, have triggered a spike in global oil and diesel prices.
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Oil prices jumped on Thursday and settled up more than $4 a barrel. Global diesel prices also hit a record high last Friday with the average price for a gallon (3.79 litres) of diesel at $6.50, up from $5.61 a month earlier, according to the American Automobile Association (AAA).
In a statement on Thursday, G7, which includes the US, UK, Canada, Japan, Germany, Italy and France, with the EU also represented, said there will also be a “substantial diesel release within the first 20 days” and discussions over “additional diesel releases as necessary” will be held in the coming days.
Will the G7’s energy release stabilise the global energy market?
Here’s what we know:
What has the G7 announced?
After a video conference of G7 leaders chaired by French President Emmanuel Macron on Friday, the group said in a joint statement: “Taking into account commitments that have already been fulfilled, we will implement our commitments with a coordinated release through the IEA of 100 million barrels.”
Earlier this week, the International Energy Agency’s (IEA) Executive Director Fatih Birol said that members had released about two-thirds of the 400-million-barrel agreement.
The G7 energy release will begin immediately and last for four months and will include a substantial diesel release for 20 days. It is not clear how many oil and diesel stocks each member of the group will release.
“We will convene in the context of the IEA in the coming days to discuss the possibility of additional diesel releases as necessary,” the statement said.
“We will coordinate maintenance schedules across G7 refineries to prevent simultaneous capacity shutdowns and temporarily increase utilization rates where feasible,” it added.
The G7 also urged member countries to refrain from imposing export restrictions on energy products among themselves.
Earlier this week, the Trump administration had threatened to impose a ban on US 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 been soaring due to the US and Israel’s war on Iran, which has disrupted energy exports from the Gulf. Meanwhile, the Ukraine attacks on Russian energy installations have also disrupted global energy supplies.
Former head of the International Energy Agency’s Oil Industry and Markets Division Neil Atkinson told Al Jazeera that there are three key factors contributing to the decline in global diesel supply.
First, “there isn’t diesel coming out of the Middle East to Europe, and Europe took quite a lot of diesel from Saudi Arabia and from Kuwait.”
Second, “Russia has now ceased to export diesel at all” due to “the attacks by Ukraine on Russian refineries”.
“And China is no longer exporting diesel,” he added.
“We’re in a situation where demand remains relatively high and is likely to stay high because of the agricultural harvesting season.”
According to data from the Joint Organizations Data Initiative (JODI) and the Organization of Petroleum Exporting Countries (OPEC), the United States is the world’s largest producer and exporter of diesel. It produces around 240.5 million tons and exports around 1.26 million barrels of diesel per day.
Russia is the world’s second-largest exporter of diesel, supplying 783.4 thousand barrels per day to the global market. Saudi Arabia is the world’s second-largest producer of diesel at 58.4 million tons, but it consumes large portion of its diesel domestically.
Will the G7 energy release bring prices down?
After the G7 announcement, French President Macron, who had co-chaired the meeting, said the group’s move to release the oil will “bring down the prices of petroleum products, particularly diesel.”
The price of Brent crude oil, the international benchmark, briefly dropped below $100 a barrel after the G7 announcement, but rose to around $102 in the evening.
Naeem Aslam, Chief investment Officer at Zaye Capital Markets, told Al Jazeera that the G7 energy release was “very much needed”, but the group’s announcement was just to ease off the pressure on the energy market.
“The actual structure changes about who is going to release [the energy stocks] and what and where the bans will be lifted, remains an important component in terms of the market,” he said.
Aslam added that by Sunday night especially before the markets open, the added pressure on energy prices will come off. “But going into Monday morning…we could potentially see the reversal in the market,” he added.
Atkinson said the G7’s fuel release is welcome but “doesn’t deal with the fundamental problem that the global supply remains lower than normal”.
Atkinson told Al Jazeera that “seven months after this war started in the Middle East, we are still in a situation where the global supply of crude oil or products remains significantly below pre-war levels.”
“We are now in a situation where the focus is on end use of products, mainly diesel, which is what we’re talking about here,” he added.
What has Trump said?
Soaring diesel prices have been a source of tension for the Trump administration and Republicans who fear this will cost them votes in the upcoming November midterm elections.
Last week, Trump pressured Ukraine to stop attacking Russian diesel facilities amid the war, which Russia started when it invaded Ukraine in February 2022.
Then, on Thursday this week, the US president told reporters that his administration “may” ask European countries to release diesel stocks, shortly after Treasury Secretary Scott Bessent urged Europe to “immediately” tap its reserves.
Trump also threatened to impose a ban on US diesel exports if Europe did not release emergency diesel stocks.
But on Friday, Trump told reporters at the White House that Washington would not impose a diesel export ban. He said the plan was never really on the table.
“Europe has a lot of diesel, and they’re going to be making a major world contribution, and so are we. And we’re not going to be doing the export ban. We’re going to be doing what we’re supposed to do,” Trump said.
“Trump is scared by diesel prices above $6, which is a price jump of 70 percent compared to before he started the war. This is likely to get worse with US diesel inventories at their lowest seasonal level since records began in 1982. So if there is not enough diesel being produced because of the US-Israeli war on Iran, and diesel reserves have been used up, the only way to bring more diesel to the US market is by exporting less,” Frederic Schneider, a nonresident senior fellow at the Middle East Council on Global Affairs, 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 their heavily stocked Diesel Oil. The process will begin immediately.”
The White House is also reportedly preparing an executive order to tackle record-high US diesel prices that 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 since diesel and gasoline are important for economies and fulfil different roles.
“While gasoline fuels cars, diesel fuels anything from trucks, freight trains, ships, tractors, harvesters, construction machinery, mining equipment and backup generators. This means gasoline is used more by consumers while diesel is mostly used by producers, meaning a diesel price shock spreads into the price of almost everything else, most prominently food, building materials and anything delivered by truck,” he added.
Farmers are hit twice because diesel prices are rising at the same time as fertiliser prices, both of which have been pushed up by the closure of the Strait of Hormuz.
“A higher diesel price therefore acts like a tax on production and logistics, while higher gasoline prices act like a tax on consumers directly. Like higher gasoline prices, higher diesel prices risk stagflation by pushing up inflation while simultaneously squeezing margins in transport and agriculture, meaning central banks find [themselves] in a dilemma between cutting rates [helping producers] and raising rates [cutting inflation],” he said.
