Tensions in the Middle East and the Persian Gulf region are putting strong pressure on the global fuel market and shipping through the critically important Strait of Hormuz has become significantly more difficult.

About three-quarters of the fuel pumped into cars or trucks at Estonian filling stations comes from Poland's Orlen and most of that in turn comes from the Mažeikiai refinery in Lithuania. The remaining quarter of fuels is imported from Finland's Neste, which operates a refinery in Porvoo.

Priit Enok, a member of the management board of the Estonian Stockpiling Agency, told ERR that so far neither Orlen nor Neste has experienced supply difficulties.

"Orlen has confirmed that at the moment (Wednesday afternoon – ed.) all of their deliveries are proceeding as planned. Companies in our region are also not so clearly dependent on a single supply channel," Enok said.

Enok said that about a quarter of the crude oil reaching refineries connected to Estonia originates from the Persian Gulf region. However, this does not mean that every fourth "oil molecule" has passed through the Strait of Hormuz — the cargo is mostly obtained from Mediterranean ports.

Roughly another quarter or even more of the crude oil reaching refineries comes from the North Sea, meaning Norway. In addition, about a quarter comes from Africa and another quarter from North or South America, he explained.

Priit Enok said that compared with the early days of the Russia-Ukraine war, the crude oil market in the region has diversified significantly. "In 2022, when both the Orlen and Neste refineries sourced the vast majority of their crude oil from Russia, from nearby Russian ports, we were much more dependent on a single supplier," he said.

The Stockpiling Agency board member said that Estonia is in fact just a small piece of a vast global system and what happens in the fuel market will primarily depend on developments in the Middle East.

Agency: 50% chance countries will grant access to fuel stocks

Enok, who is also chair of the International Energy Agency's (IEA) committees on energy security and energy markets, said that developments in global oil markets are currently in what is known as a "yellow scenario." This means crude oil prices have risen, but there is currently no shortage of oil on the global market.

"If we really see at the Energy Agency that the physical situation has become such that barrels are actually starting to run short on the market, then we have the capability to respond. That decision will likely not come this week. We will reassess on Monday and I think the probability that we decide next week to release or jointly deploy reserves is about 50–50. But it all depends on how this military conflict continues," Enok said.

If the countries of the IEA were to decide to use national fuel reserves to prevent supply disruptions, Estonia would face a similar decision. Like other countries, Estonia has roughly three months' worth of reserves of gasoline, diesel and aviation fuel.

Enok said that if other IEA members were to offer fuel from their national reserves, the Estonian government would likely make the same decision.

"I would rather predict that if there are problems on the global market, they will also reach us and we will probably have to act in solidarity and in line with our own interests. In that case, it is very likely that we would also allow the reserves to be used," he said.

National fuel stockpiles can be used even if there are no supply problems

The Stockpiling Agency board member said the government could decide to offer fuel from the national reserve to filling stations even if the refineries connected to Estonia are not experiencing supply problems.

For example, in March 2022 the government decided to release 5,000 tons of diesel from the state's liquid fuel reserve. At the time, Estonia's supply of gasoline and diesel was well secured, but the decision was primarily aimed at supporting the reliability of international fuel supply.

"At that time there was no shortage in Estonia itself, but the government considered it right to act in solidarity with other partner countries. Based on that example, it may also happen that things are fine at home, but we act in solidarity to help prevent a shortage on the global market," Enok said.

Enok explained that if the government were to decide to release the national liquid fuel reserve, it would essentially mean that the Stockpiling Agency would temporarily take over the role of oil product importers.

"These are market-based operations, which means that we would sell fuel to market participants instead of the importers," he said.

However, the volume of fuel that could be offered to the market is not yet known.

"That is a decision for the government — whether we make available reserves sufficient for, for example, one week or two weeks. In principle, larger sellers would receive larger quantities and smaller sellers smaller quantities, according to their previous market share," Enok explained.

Using national reserves would lower prices at the pump

Enok said that if member states of the International Energy Agency were to decide to supply fuel to the market from their reserves, it would certainly also affect fuel prices.

"Even today (Wednesday – ed.), there was news that global market prices did not fall because yesterday's [Tuesday – ed.] meeting of the International Energy Agency did not reach a decision. Market participants are watching every piece of news and such a decision would have signaled that there will be additional supply on the market. Allowing reserves to be used should therefore increase supply and could either push prices down or at least prevent them from rising. However, there is no mathematical model to say exactly how much that would mean in cents or euros," he said.

Estonia's strategic liquid fuel reserve amounts to 90 days of normal consumption and is stored in finished products such as gasoline, diesel and aviation fuel. The majority — 88 percent — of the fuel reserves are located in Estonia. The main purpose of the reserve is to ensure domestic supply security in situations where fuel imports are disrupted.

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