Words such as pot, kettle and black spring to mind when hearing Abdullah al-Badri criticise the International Energy Agency’s decision to release oil inventories as distorting the market and akin to a “weapon”. As secretary-general of Opec, he heads a cartel whose raison d’être is manipulating the oil market. The oil cartel’s power peaked during its self-described use of the “oil weapon” in 1973 and has declined since as the price spike it engineered led to a big loss of market share.
There is at least a morsel of truth in Opec’s accusation, though. While the IEA is technically acting within its mandate by responding to a physical supply disruption in Libya – just as it did on the two other occasions when it sanctioned releases (the 1991 Gulf war and hurricane Katrina) – there are stronger political overtones this time. In uncharacteristically firm language, the IEA warned oil producers in late May to boost output. Opec, or rather its hawkish wing, then thumbed its nose at consumers three weeks later, sending the oil price, already near a three-year high, surging.
Those chiding the IEA for using emergency supplies as a price management tool have a point but they should consider the context. The IEA’s 28 member states finally have shown some backbone at the cost of only a small diminution of their reserves. Even if the price impact of the IEA’s move lingers only for a month, the hit to Opec countries’ coffers would come to about $5bn – quite a wake-up call. The IEA’s future communiqués will have more heft.