G7 energy ministers have stopped short of agreeing on a release of strategic oil reserves and instead has asked the International Energy Agency to assess the situation before acting.
The IEA said it was convening an extraordinary meeting of its member states on Tuesday.
Members would "assess the current security of supply and market conditions to inform a subsequent decision on whether to make emergency stocks of IEA countries available to the market," IEA executive director Fatih Birol said.
"We have asked the IEA to elaborate scenarios for a potential oil stock release, we need to be ready to act at any moment," French Finance Minister Roland Lescure told reporters after the G7 ministers held a call to discuss soaring energy prices due to the war in Iran.
The G7 comprises the United States, Canada, Japan, Italy, the United Kingdom, Germany and France.
Benchmark oil prices surged to almost four-year highs on Monday but prices plummeted 11 per cent on Tuesday after US President Donald Trump predicted the war in the Middle East could end soon.
Later on Tuesday, European Union leaders are due to discuss competitiveness, including energy prices, on a call with German Chancellor Friedrich Merz, Italian Prime Minister Giorgia Meloni, Belgian Prime Minister Bart De Wever and others.
European governments are on edge about the prospect of a repeat of the energy crisis they faced in 2022 after Russia invaded Ukraine, when prices surged to record peaks, forcing some industries to shut down operations.
Even before the Iran crisis, European energy prices were typically higher than those in the US and China and EU policymakers were facing calls from industry to step in with emergency measures.
"For fossil fuels we are completely dependent on expensive and volatile imports, putting us at a structural disadvantage to other regions. The current Middle East crisis gives a stark reminder of the vulnerabilities this creates," European Commission chief Ursula von der Leyen said on Tuesday, adding that the reduction in nuclear energy had been a strategic mistake across Europe.
The European Commission on Tuesday said the European Investment Bank would invest 75 billion euros ($A123 billion) over the next three years in energy infrastructure to unblock power grid bottlenecks and try to curb prices.
"We are much better prepared for this situation than we were in February 2022," EU Energy Commissioner Dan Jorgensen said, citing a more diversified energy supply.
Europe received about 40 per cent of its gas from Russia before its deliveries were slashed in 2022.
Today, the EU's top suppliers are Norway and the United States.
with Reuters