Most OPEC member states have taken the International Energy Agency's June 23 decision to release 60 million barrels from the strategic petroleum reserves of the IEA member states, or the equivalent of 2 mb/d during the present month, to be a provocative act. The IEA seems to have returned to its old habits, in terms of putting pressure on the markets with a view to reduce prices in an artificial and deliberate manner. In truth, such moves have always been a source of concern for OPEC members, ever since Henry Kissinger called for the establishment of the IEA in 1974. By releasing part of its strategic reserves, the IEA is attempting to put pressure on prices, irrespective of factors such as supply and demand. In other words, prices are being prevented from naturally evolving within the framework of the open and free market. The IEA has intervened by pumping more crude oil than the markets actually need, with the aim of gradually reducing prices. This begs the question, why has the IEA made such a decision, at this particular time? There are many possible and different answers. For one, it is possible that it is an attempt to reduce prices, in light of the massive increase in gasoline prices in the United States, and their impact on U.S. public opinion amid the election campaigns, and amid a period of recession in both the U.S. and Europe. Or, it could be an attempt to reduce prices with the aim of putting pressure on Iran and reduce its oil revenues, and hence its regional political influence. Moreover, it could be a reaction to the successful rejection by Iran and other OPEC members of increasing the production ceiling during OPEC's last ministerial meeting. It is also possible that it is an attempt to offset the disruption in the supplies of light Libyan crude oil, while claiming that other OPEC states did not provide sufficient additional quantities of this type of crude in a timely manner. It could also be an American attempt to put pressure on major oil-producing countries, because of their support for the Palestinian authority's bid for Palestinian statehood next September. Finally, it could be a pre-emptive move to anticipate the spread of unrest across Arab countries, and the possibility of further disruption in the supplies of crude oil, as is the case at present in Libya. No matter what the real reason behind the decision may be, - knowing that it is an American decision, (since it is widely known that the IEA follows Washington's dictates in such strategic issues)- it is clear that its main goal is to try to put pressure on oil prices, and not just compensate lost Libyan oil supplies. However, this contrasts with two essential issues: First, the fact that the purpose of strategic reserves is to offset supply shortages, and not to influence or pressure the prices of crude oil. And second, the information available, particularly that released by the IEA itself, indicates that adequate –if not surplus- oil reserves are available. (The IEA's information indicates that the overall crude oil reserves of its member states amount to about 4.1 billion barrels of crude oil, of which 1.6 billion are allocated for emergency contingencies). This means, in the language of numbers and figures, that there are reserves of imported crude oil that are sufficient for 146 days (or about five months) and available for the Western industrialized, while what is required is the provision of oil reserves to cover 90 days (three months), according to the regulations of the IEA. In other words, the crude oil reserves in industrialized countries are more than sufficient at present, even if the unrest induced by the so-called democratic Arab spring spreads further, or is set to continue for a longer period of time. Second, if we assume that tapping into the strategic reserves will be limited to July only, this means that prices will fall during this month, only to rise again with the start of autumn and then winter. The IEA's move is thus short-term and is rather ineffective over the long term. This was the exact conclusion reached last week by the OPEC Secretary General Abdullah al-Badri, who said: I hope this decision will be suspended immediately. We do not find that there is a valid reason to release this amount of crude oil from the strategic reserves, and I hope that the IEA will refrain from such actions. In a press conference, he added: It is possible for prices to rise in the last months of the year, despite the fact that commercial petroleum reserves have been tapped this month. What is surprising about the IEA's decision is the large quantity of additional oil it will pump in the markets. Most of the data available indicates that OPEC's overall output this month will rise to 30.2 mb/d, bearing in mind that the expected rise in the oil output of Saudi Arabia, Kuwait, and the UAE is estimated at 1.2 mb/d. It is very likely as well as expected, that the IEA's decision – along with the dispute at OPEC's last ministerial meeting-, will create a big wedge that may last for a while at OPEC. This is very significant and is not without serious implications, as it may put an end to the period of harmony and cooperation among oil-producing countries that prevailed in the last decade. It may also cause the disputes in the Middle East to spread to within OPEC, influencing its oil decisions. *. Mr. Khadduri is a consultant for MEES Oil & Gas (MeesEnergy)
