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 | Source: Global Banking & Finance Review |
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Disruptions in oil markets stemmed from the war in the Middle East. To tackle this issue, the IEA member states agreed to release 400 million barrels of oil from their emergency reserves. Let's see how these reserves work. |
The International Energy Agency (IEA) |
The IEA is an intergovernmental organization. It was set up after the 1973 oil crisis. A war broke out between Israel versus Egypt and Syria. That year, Arab oil-producing states decided to use oil as a weapon. They reduced production and increased prices. They also put embargoes on states backing Israel. In 1974, the IEA was then created to address troubles in global oil supplies. |
The agency counts 32 member states. These members must maintain oil stocks. They also commit to respond to disruptions through collective action. Five accession states are going through the process of becoming full members. The associations states work with the IEA on a wide-range of issues related to energy. |
 | Source: IEA |
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The IEA has 4 key missions. They include: |
Energy security. It coordinates emergency responses to oil supply disruptions. This happens through reserves, stock releases and crisis monitoring. Energy data and analysis. It provides energy market reports, forecasts, energy transition analysis and state energy profiles. Energy transition. The IEA now works a lot on renewables, decarbonization, and energy efficiency. Policy support. It helps governments design energy policies, crisis and resilience strategies, and transition roadmaps.
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How strategic reserves function |
IEA member states must hold SPR equivalent to at least 90 days of net oil imports. It is aims to protect economies against supply disruptions. These troubles can be due to wars, embargoes, blockades, or disasters. These reserves allow to: |
Ensure energy security Stabilize global oil markets Provide emergency supply during crisis Reduce price volatility Give governments time to react
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There are 3 main storage ways. The government stocks are a state-controlled storage. The industry stocksare obligations on oil companies. There is also a ticket system. These are contracts to access other countries' stocks. IEA member hold emergency stockpiles of over 1.2 billion barrels. |
There are also talks on whether the strategic reserves should be extended to other crucial resources. These include gas, minerals, chips, and semiconductors. These resources are also key to industries and the economy. |
Cases when these reserves were used |
There has been 6 coordinated stock release in the history of the IEA. |
The Gulf War in 1991. It was the first event to trigger a release. Iraq had invaded its neighbor Kuwait. There were risks of supply disruptions and market panic over supposed shortages. About 60 million barrels were released. |
Hurricanes Katrina and Rita in 2005. They led to the first shocks due to climate. They caused damages to oil infrastructures, and logistics were paralyzed. 60 million barrels were released. |
The civil war in Libya in 2011. It also led a 60 million barrels release. Libya exported about 1.6 million barrels per day. High-quality crude was removed from markets. |
The invasion of Ukraine in 2022. In March, members agreed to a release of about 60 million barrels of oil. It was followed by an additional 120 million barrels in April. Until Iran, this was the largest stock release in IEA's history. |
The last release decision followed the outbreak of the Iran war few weeks ago. In cause, the supply shock, and soaring prices. It is the most important release since IEA's creation. 400 million barrels are part of the plan. The U.S. Department of Energy announced a 172-million-barrel release. |
How effective are these releases? |
On the short-term these releases can help. Although they cover just a small fraction of the global consumption and shortages. They can quickly increase supply during troubles and calm markets. They also allow to buy time for supply chains to adjust or for settlements of conflicts. |
But it is only a band aid. Reserves cannot fix structural shortages. After the releases stop, prices can rise again if the problem remains. Some estimates say this solution could stabilize prices for 30 days. But after that, prices can go up again if the trouble isn't over. Plus, states must refill reserves, often at high prices. Also, it might be a short-term solution for oil. But gas is also impacted, as can be seen with the impact of last night's strikes by Iran. |
Decoding geopolitics isn't a job. It's survival. |
Joy |
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