Global energy crisis highlights meagre oil buffers in developing world | Oil and Gas News
Global Energy Crisis Exacerbated by Strait of Hormuz Blockade
As the blockade of the Strait of Hormuz intensifies an unprecedented energy crisis, governments are urgently working to access emergency oil reserves. Developing countries, however, remain unprepared for the economic turbulence resulting from soaring fuel prices linked to the ongoing conflict involving the US, Israel, and Iran.
The fallout from this conflict has led to spikes in fuel prices that are affecting nations worldwide, yet poorer, import-dependent countries are particularly vulnerable. Many of these nations do not have sufficient energy reserves to cushion the impact of rising costs.
The International Energy Agency (IEA), based in Paris, is charged with overseeing the global oil supply. It comprises member countries from the Organisation for Economic Co-operation and Development (OECD), which, while responsible for a notable portion of oil consumption in the past, now represent only 16% of the global population.
In March, the IEA coordinated the release of 400 million barrels from emergency stockpiles to stabilize global prices. Although this move was intended to benefit all countries, it underscored the inequity of reserve levels among different regions, particularly in the Global South.
Especially hard-hit are nations in the Asia Pacific region, which are heavily reliant on fuel imports and are expected to experience significant economic fallout. The Asian Development Bank recently downgraded its growth forecast for developing economies in the region for 2026 from 5.1% to 4.7%.
Khalid Waleed, a research fellow at the Sustainable Development Policy Institute in Islamabad, pointed out that these nations are often the least able to afford increased fuel prices. He noted, “Strategic petroleum reserves are expensive to build, fill, finance, rotate, and govern.” Nations facing financial constraints, including those struggling with debt servicing and rising import bills, may find maintaining substantial reserves to be financially unsustainable.
Data on global oil stockpiles is varied and often lacks transparency. IEA guidelines mandate that member countries maintain reserves equal to 90 days of imports. As of March, member states reported collective reserves of approximately 1.2 billion barrels, with an additional 600 million barrels held by the private sector under governmental oversight.
Notably, non-IEA members like China maintain substantial reserves. The U.S. Energy Information Administration estimates that China holds around 1.4 billion barrels, surpassing the total reserves of several IEA member countries combined. Other significant non-IEA holders of oil stockpiles include India, Saudi Arabia, and the United Arab Emirates.
As the influence of emerging economies like China and India grows, the IEA’s role in oil price management may diminish, potentially increasing risks to global energy security. Andreas Goldthau, an energy expert from the Willy Brandt School of Public Policy at the University of Erfurt, explained that a smaller proportion of OECD nations in global demand weakens the IEA’s capacity to manage oil market fluctuations effectively.
Despite the challenges, Claudio Galimberti, chief economist at Rystad Energy, emphasized the necessity for countries to establish reserves for 120 to 150 days rather than the IEA’s 90-day requirement. He stated, “Strategic petroleum reserves are a matter of national security.”
In developing countries, where economic reliance on fuel imports is high, current stockpile levels are often markedly below the IEA’s standards. For example, Pakistan’s Energy Minister recently revealed that the country has enough crude oil to last only five to seven days. Officials from Indonesia, Bangladesh, and Vietnam have reported similar insufficient reserves.
Experts have noted that these countries not only lack the financial means to build strategic reserves but also face challenges such as inadequate infrastructure and domestic refining capacity. This has further limited their ability to manage oil supplies and stabilize fuel prices.
To reduce reliance on fossil fuels, experts argue for investments in renewable energy initiatives. Neil Crosby from Sparta in Singapore highlighted that a transition to green energy could provide a more sustainable solution to energy dependence.
Additionally, experts suggest that developing nations could benefit from improved international cooperation on energy management, although existing policies, such as price controls and subsidies, have often hindered effective practices.
In light of the ongoing energy crisis, there are calls for new frameworks to enhance global stockpiling and distribution mechanisms. Currently, IEA membership is limited to OECD nations, excluding major economies like China and India, even though these countries collaborate with the IEA on various energy-related matters.
Galimberti indicated that the current circumstances may prompt developing nations to demand a more active role in global energy governance. Potential strategies could involve forming regional agreements on energy trade, emergency sharing, and infrastructure financing.
Despite the challenges posed by unaligned interests within regional blocs, there remain opportunities for innovative solutions to enhance energy security and stabilize markets.
