G7 May Cool Oil Today—But the Next Spike Could Be Coming

Oil remains the market’s central pressure point, and the weekend only deepened the sense that this is not a short, tidy disruption. Crude spiked as high as $119.48 Sunday night, the highest level since 2022, before retreating toward the low $100s after the Financial Times reported that G7 finance ministers would hold an emergency call with the International Energy Agency on Monday to discuss a possible joint release of strategic reserves. Reuters separately reported that the G7 is considering an emergency release in response to oil prices surging more than 25% as the conflict and shipping disruptions intensified.

The key issue for markets is that the weekend’s headlines did not point toward de-escalation. Iran’s decision to elevate Mojtaba Khamenei as supreme leader signaled continuity, not compromise, and reinforced the view that hardliners remain firmly in control. That matters because it lowers the odds of a quick political off-ramp and raises the risk that the conflict drags on even if the military balance remains tilted against Tehran. The leadership transition is a sign that Iran intends to maintain a hardline posture, while CBS reported Defense Secretary Pete Hegseth saying the U.S. campaign is likely to continue and bring more casualties.

That is why the G7 Meeting matters so much this morning. A coordinated reserve release could help calm markets in the short run by injecting emergency barrels into a market that has suddenly become obsessed with supply security. According to Reuters and the FT, officials are discussing a release of roughly 300 million to 400 million barrels, which would be a meaningful use of the IEA system and a notable policy reversal after the Trump administration had previously signaled that such a move was unnecessary. The reserve system exists for exactly this kind of shock, and the headlines alone were enough to knock Brent well off its overnight highs.

But the market’s bigger problem is that strategic reserves can ease panic; they cannot reopen the Strait of Hormuz. Iraq’s oil production has already fallen 70%, to about 1.3 million barrels per day from roughly 4.3 million, because crude storage has effectively filled and exports through Hormuz have been choked off. Reuters also reported earlier that Iraq and Qatar had already shut in production because tankers could not move through the strait, and analysts warned that Kuwait and the UAE could be next as storage tanks fill. In other words, this is no longer just a fear trade. Real barrels are being trapped, output is being curtailed, and the physical system is starting to jam.

That is why any reprieve from a G7 release may prove temporary. If storage continues backing up, facilities remain vulnerable to attack, and producers keep throttling output, then reserve barrels are more like a pressure-relief valve than a durable solution. The spike in oil has been driven not only by the risk to Hormuz, which carries roughly a fifth of global oil and LNG flows, but also by production cuts and refinery disruptions across the region. Brent’s prompt premium surged to record backwardation levels, underscoring how tight immediate supply has become. Markets are not just pricing fear; they are pricing scarcity right now.

The threat of a prolonged war is what keeps the upside risk in crude alive even after today’s pullback. Reports over the weekend suggested President Trump had shown serious interest in limited U.S. ground deployment for specific strategic purposes, while CBS reported Hegseth saying the campaign would escalate in the days and weeks ahead. Even if those plans never fully materialize, the mere possibility of a deeper U.S. commitment makes it harder for traders to assume the conflict will burn out quickly. Add in ongoing attacks on energy infrastructure, shipping insurance concerns, and rising freight rates, and it is not hard to see why the market is reluctant to believe oil can settle back into a normal range yet.

This is also why the macro impact has become so severe. Higher crude is feeding directly into inflation fears, lifting bond yields, supporting the dollar, and hitting risk sentiment across equities. The jump in oil is already reverberating through commodity markets and could keep fuel prices elevated, while U.S. gasoline prices had already risen sharply over the past week. If crude were to move back toward $120 and stay there, the conversation would shift quickly from “energy shock” to “stagflation risk,” especially for economies that are large net importers of oil.

The bottom line is that the G7 meeting can absolutely matter today, and it may be enough to stabilize oil for a session or two. But unless it is paired with real evidence that Hormuz is reopening, production cuts are easing, and Washington sees an exit ramp rather than a wider campaign, the relief is likely to be temporary. Right now, the balance of evidence still argues that crude remains biased higher, and another move back toward $120 looks more plausible than a clean return to pre-crisis levels. Oil has backed off the highs, but the market’s core problem has not been fixed. It has merely been given a brief sedative.