Why Energy Prices Spike During Conflict — and How Countries Respond
Energy ministers from the G7 are holding urgent talks as rising tensions involving Iran push global oil prices sharply higher and raise concerns about energy security.
Crude prices briefly surged to around $119 per barrel this week — their highest level in nearly four years — amid fears that conflict in the Middle East could disrupt supplies from the Gulf region. Much of the concern centers on the Strait of Hormuz, a narrow shipping route through which roughly one-fifth of the world’s oil and liquefied natural gas exports normally pass.
Officials say governments are discussing potential responses if supply disruptions worsen, including whether to release oil from emergency strategic reserves.
Finance ministers from several major economies previously discussed a possible coordinated draw of 300–400 million barrels from reserves linked to the International Energy Agency. These stockpiles were created to help stabilize markets during sudden supply shocks.
Why energy prices spike
Energy markets are particularly sensitive to geopolitical crises because supply and demand are often tightly balanced. Even the possibility of disruptions can push prices higher as traders add a “risk premium”.
When conflicts threaten production facilities, pipelines or shipping routes, markets quickly react to the potential loss of supply. Because oil is traded globally, disruptions in one region can affect fuel prices worldwide — raising transport costs and increasing energy bills for households and businesses.
The role of strategic reserves
Strategic oil reserves are designed to act as a buffer in these situations. Many major economies hold large emergency stockpiles that can be released during supply crises.
In theory, releasing oil from these reserves temporarily increases supply and can calm markets. The approach has been used before, including during the 2022 global energy crisis after Russia’s invasion of Ukraine.
Even the discussion of a coordinated release can influence prices if traders expect additional oil to enter the market.
However, reserves are only intended to manage short-term shocks. Large drawdowns reduce emergency buffers and cannot replace lost supply indefinitely if disruptions persist.
A longer-term strategy
The debate also highlights a broader shift in energy policy. Many countries are expanding renewable energy not only to reduce emissions but also to limit exposure to volatile fossil fuel markets.
Unlike oil and gas, renewable sources such as wind, solar and hydropower rely on domestic resources rather than imported fuel. Once built, they can generate electricity without the risk of supply disruptions or shipping bottlenecks.
Supporters argue this can give countries greater control over their energy systems and help stabilize power prices over time. However, renewable systems still require expanded grids, storage technologies and backup generation to maintain reliable supply.
As global tensions continue to affect energy markets, governments are increasingly balancing both approaches — managing short-term price shocks while investing in energy systems that are less vulnerable to future crises.