Amid the conflict in the Middle East obstructing the vital Strait of Hormuz fuel passage, the global community is resorting to using oil reserves to address the supply disruption.
The International Energy Agency (IEA) announced on Wednesday its decision to release 400 million barrels from emergency reserves, marking its most significant release to date, in response to an unprecedented disruption, as stated by the IEA.
Canada’s lack of strategic oil reserves is now under scrutiny, given that it is the sole G7 nation without such reserves.
While Natural Resources Minister Tim Hodgson pledged Canada’s commitment to contribute to global oil supply, Conservative Party Leader Pierre Poilievre criticized the Liberal government for the absence of reserves.
During a heated exchange with the prime minister in a question period session on Wednesday, Poilievre pointed out that Canada’s stockpiles are non-existent.
So, why does Canada not have strategic reserves, and how can the country assist in enhancing global supply? Here are the details you need to understand.
Why no reserve?
Canada is part of the IEA, which includes 32 member countries. Established in 1974 in response to the energy crisis triggered by the Arab oil embargo, the IEA and its reserves aim to coordinate an international energy crisis response.
Member nations currently hold over 1.2 billion barrels of public emergency oil stocks, with an additional 600 million barrels of industry stocks held under government obligation.
The IEA requires members to maintain reserves equivalent to 90 days’ worth of net imports; however, Canada is exempt from this requirement due to its status as a net exporter.
Despite being a net exporter, the U.S. maintains a strategic reserve. The U.S. is set to release about 174 million barrels from its reserves, starting the following week.
While a significant portion of Canada’s oil is exported to the U.S., some oil from the Trans Mountain pipeline also serves Asian markets, which are facing high demand due to the closure of the Strait of Hormuz.
What can Canada do now?
Rory Johnston, an industry analyst and founder of Commodity Context, points out that while tapping into global reserves will alleviate the supply situation somewhat, it is insufficient to compensate for the halt in the Strait, which used to see around 20 million barrels passing through daily before the conflict.
Johnston suggests that the current circumstances highlight the need to reconsider the rule exempting exporters from maintaining strategic reserves.
“With a strategic petroleum reserve, we could quickly increase supply,” Johnston explained, emphasizing
