A ‘black swan’ oil moment? – II

Moreover, while the Business Recorder (BR) editorial, published on March 10, supports government’s move of raising prices, pointing out in turn ‘Faced with the risk of hoarding and panic buying spiraling into a full-blown crisis, the government’s move should be seen as a bid to stabilise expectations, maintain market availability and pre-empt a disorderly market response’ the writer of this article believes that the government should have managed the probable hoarding crisis with better regulation/governance measures, and not by placing a heavy cost on oil consumers in terms of putting in place inordinate increase in price of oil products.

That, in turn, leads back to the original mistake of following neoliberal, and austerity policies that have over the years diminished the role of government and, in turn, its capabilities, which in a developing country like Pakistan, were already at a low level to start with. Hence, there is an immediate need of policy revision to a more mission-oriented, and purpose-driven non-neoliberal role of government, especially given a situation of polycrisis globally for some years now, in particular, in terms of climate change crisis.

Why are the IMF and the World Bank so quiet over the fast-worsening situation of balance of payments for a number of developing countries in particular in the region? For instance, the IEA has announced releasing significant level of oil into the market to ease supply pressures, and to have reducing effect on prices.

In its March 11, press release ‘IEA Member countries to carry out largest ever oil stock release amid market disruptions from Middle East conflict’ indicated in this regard, ‘The 32 Member countries of the International Energy Agency [IEA] unanimously agreed today to make 400 million barrels of oil from their emergency reserves available to the market to address disruptions in oil markets stemming from the war in the Middle East. …IEA members hold emergency stockpiles of over 1.2 billion barrels, with a further 600 million barrels of industry stocks held under government obligation. The coordinated stock release is the sixth in the history of the IEA, which was created in 1974. Previous collective actions were taken in 1991, 2005, 2011, and twice in 2022.’

READ MORE: A ‘black swan’ oil moment?—I

Seen in the historical context, Sky News correspondent, Ed Conway, in his March 11 programme ‘Ed Conway Iran Conflict analysis: The world is still short of oil. Here’s why’ indicated that the release of 400 million was indeed unprecedented given previously during the First Gulf War in 1991 they released 75 million barrels, during Hurricane Katrina (2005) the number of barrels released stood at 60 million barrels, same amount was released during Libya Civil War in 2011, while during the Ukraine War in 2022, IEA released in two tranches 182.7 million barrels.

While IEA announced releasing substantially high stock of barrels at 400 million barrels during Iran War (2026), it was not indicated as to how many barrels will be released on a daily basis. In terms of the gap, it was pointed out by Ed Conway in the same programme that global demand for crude oil on a daily basis stood at 100 million barrels. Of this, as indicated by IEA, around 20 million barrels per day came through the Strait of Hormuz. So, the real question is how to fill this gap, so that prices can go back to pre-Iran War levels.

Firstly, it will depend on the extent of daily release by IEA, which it has not indicated in the press release. Historically, around 2 million barrels were released during all of the previous stock releases, except during the First Gulf War when 2.5 million barrels were released on a daily basis. So, this time it could be that a similar amount at 2 million barrels per day is released, or else given the unprecedentedly high level of overall release at 400 million barrels, Ed Conway expected may be around 4.4 million barrels per day are released.

Secondly, he expected that oil already passing through pipelines around the Strait of Hormuz could have room for greater flow, where an additional 5 million barrels per day could be enhanced in a major ‘East-West Pipeline’ passing through Saudi Arabia, and additionally 0.7 million barrels per day could make through ‘Fujairah Pipeline’ that goes through the UAE. This additional supply of oil adds up to 5.7 million barrels per day, which taken together with expected daily release by IEA at 4.4 million barrels per day, takes the supply to 10.1 million barrels per day. Thirdly, there is this slight movement of oil going through a ‘shadow fleet’ of a small number of ships who have switched off their transponders, and sneaking through. Ed Conway estimated this unofficial flow of oil stood at around a million barrel a day. This takes the additional supply to 11.1 million barrels, helping, in turn, bridge the overall oil supply gap at around 20 million barrels per day, to possibly that extent.

Although, the actual provision of oil given the virtual blockage at the Strait of Hormuz will continue to be a serious stumbling block in terms of how much of oil can actually reach countries – where, according to Bloomberg, and US Energy Information Administration, during the first quarter of 2025, 38 percent of oil from Hormuz went to China, followed by 15 percent received by India, 12 percent South Korea, 11 percent Japan, 14 percent ‘other Asia’, and 10 percent ‘other regions’ – yet the intent by IEA to release significant level of oil will likely send much-needed support to an otherwise very volatile oil market. As indicated above, a little more than half the supply gap could get plugged, which means ceteris paribus, the oil prices could also be around half of where they would otherwise be. Having said that, given the high increase in oil price already, and even expectedly half of where the price rise without this likely additional supply of oil would have been, would still probably continue to produce strong negative economic tremors globally, and especially for net oil importing countries in the region in particular, including Pakistan.

The Bloomberg published article titled ‘IEA proposes massive release of emergency oil stockpiles’ indicated above, and pointed out in this regard, ‘Saudi Arabia, the United Arab Emirates and Iraq are among producers deepening oil supply cuts, shaving about 6 percent off global output, as the loss of transit through [Strait of] Hormuz causes the region’s storage tanks to fill up. The UAE also halted operations at its biggest refinery, Ruwais, on Tuesday as a precaution after a drone strike in the area. Some traders and analysts doubt that consumer governments will be able to tap inventories quickly enough to fill the yawning supply gap.’

The founder of ‘Vanda Insights’, Vandana Hari, while recently giving an interview to Bloomberg, commented with regard to the overall impact of the conflict in Iran on oil, and the somewhat limited impact of release of oil by IEA, as follows: ‘What we have lost, more than ten days of war, very easy calculation, about 20 million barrels per day that flows through the Strait of Hormuz. …The market has already lost around 200 million barrels, give or take. It the IEA countries release that much of oil, and a separate question over what period of time they’ll be able to release all of that. That will simply make up what the market has already lost. Then every single day after that, that the war continues, and the Strait [of Hormuz] remains closed, what do we do? …This ‘black swan’ event, if I can call it that, has already gone past all modelling. …we are absolutely in unchartered territory here, and I don’t know what relief valves in the IEA release. Let’s see what that does, may be some psychological impact. But in the physical space, and the physical markets, it’s absolutely chaos, and mayhem.’ Although, as indicated above, the supply gap will likely remain almost half unfilled, even after release of emergency oil stock at 400 million barrels, but on some positive note it is still around double of what otherwise Vanda Hari expected at around 200 barrels.

On the contrary, no indication of a release of special drawing rights (SDRs) allocation by International Monetary Fund (IMF) to ease the fast-brewing balance of payments, and debt pressures, especially for net oil importers, and in particular the countries which are also highly vulnerable to climate change crisis; for instance, Pakistan suffered two major floods in 2022, and in 2025, respectively.

Such support by IMF will support programme countries like Pakistan, which have already gone through significant austerity, and pro-cyclical policies over some time now, paying, in turn, deep economic growth sacrifice, and where income inequality, and poverty have seen significant increase over this time, to move away to adopt much-needed non-austerity, and counter-cyclical policies. This would mean the country having greater fiscal space to provide much-needed oil subsidy, and make greater resilience enhancing public- and private investments.

Moreover, Pakistan is currently under the resilience and sustainability facility (RSF) programme with the IMF, which has been taken to build resilience against shocks. Here, the main shocks facing countries, including Pakistan, has been from the climate change crisis, the related ‘Pandemicene’ phenomenon, and from conflicts. Building resilience requires making significant amount of public, and private investments in terms of greening the economy, in particular, to shift the country away from reliance on fossil fuel, mainly to reduce the impact of global warming, and secondarily in better insulating the balance of payments from oil shocks, and overall reducing the impact of imported- and cost-push inflation. In addition, significant level of climate finance, and availability of better sovereign debt restructuring framework needs to be put in place by international community, including multilateral institutions like IMF. Moreover, it is important that both the country, and the multilateral institutions learn from the misgivings of adopting pro-cyclical, and over-board austerity policies, and to not make the mistake of repeating such practice while dealing with likely upcoming rising inflationary pressures due to sharp, and deep increase in oil prices so as to overall avoid falling into a stagflationary situation.

(Concluded)

Copyright Business Recorder, 2026