Technically, this is not a true sacrament (at least, not for Protestants). It certainly involves the use of a material substance (olive oil) to represent a spiritual reality (the healing power of the Holy Spirit). And just like the sacraments, it requires the involvement of at least one other believer (in this case, the person doing the anointing), and so it reinforces our inter-dependence. “Therefore confess your sins to each other and pray for each other so that you may be healed.” (James 5:16) But it is neither universal (for all believers) nor compulsory (not even for the sick). Jesus’ disciples “anointed with oil many people who were ill and healed them” as part of their missionary tour (Mark 6:13). And James says, “Is anyone among you ill? Let them call the elders of the church to pray over them and anoint them with oil in the name of the Lord.” (James 5:14) But there are also many instances of healing, both in the Gospels and in Acts, without this ritual.
Jesus Himself could (and often did) heal at a distance (e.g. Luke 7:1-10; John 4:46-54; Luke 17:11-19). But there were also many occasions when He made physical contact with the sick person, usually by simply touching them or by laying His hands on them (e.g. Mark 7:31-37; Luke 4:40). And there were a few times when He employed some physical action or medium, apparently to help the recipient to respond in faith: for example, when He put mud on the eyes of a man born blind (John 9:1-7). None of the people who heard of this miracle attributed the healing to the mud; they were in no doubt that if the man was indeed healed, then it was by the power of Jesus.
In the same way, James does not suggest that there is anything special (let alone ‘magical’) about the oil to be used for anointing the sick. It is ordinary olive oil that he has in mind (just as the water for baptism is ordinary water). God alone can heal.
So why use it? Why not just pray? It is, after all, the prayer that will make the sick person well (James 5:15) – if it is in accordance with God’s will. The problem is that, for many of us, prayer often seems a bit ‘unreal’. We no longer have Jesus directly in front of us; we are talking to a God who is invisible to us, whose presence is intangible, and who rarely talks back to us directly. We believe that He hears our prayers, but often there is no immediate response. And this can make prayer a struggle, especially for someone who is seriously ill (which is the situation that James seems to be envisaging). But the formal action of anointing, with the touch of a hand and the sensation of the oil on the skin, can strengthen our faith and assure us that God is indeed at work in our bodies, to heal and restore.