AN interesting development of immense consequences is gripping the energy world, generating speculations of all kind. Are Washington and the Paris-based International Energy Agency (IEA), the OECD energy watchdog, on collision course? Is Washington once again ready to take a solitary flight, irrespective of the whims and wishes of its partners in the OECD and the larger global energy fraternity? And more importantly, is the US getting fed up of the technically sound, yet apolitical advices and counsels of the Paris-based IEA. And will the move go unnoticed, without having long-term repercussions on the energy world and its current alignments? Some are now insisting, Washington seems ready to sideline the IEA so used to play on the global energy center stage. Is IEA faced with an existential crisis of a sort is difficult to answer, at this stage. But IEA Executive Director Maria van der Hoeven definitely has a real, tough task in hand. The issue triggering this crisis is, if and when to order release from emergency stocks? The IEA believes high market prices alone cannot trigger any release from the strategic petroleum reserves. And many in the energy fraternity, second this view. The IEA executive director is underlining that the release from the strategic reserve becomes imperative only once the market is tight. And currently the markets are balanced - and - there is no need to release from strategic reserves. Last Tuesday, Van der Hoeven told Reuters "higher prices alone are not the trigger for IEA collective stock release and at this moment we see that the crude oil market is adequately supplied." "We see that the loss of these Iranian barrels was long in the making, the market had time to adjust itself, " she added. "The Iranian sanctions didn't come out of the blue. The market has been adjusting relatively smoothly to lower Iranian supplies over the last nine months." However, in sharp contrast, the same day, the US Treasury Department issued a highly unusual statement on behalf of G7 finance ministers warning about the risks to the economy posed by elevated oil prices and encouraging "oil-producing countries to increase their output to meet demand." The G7 also pledged "we remain ready to call upon the International Energy Agency to take appropriate action to ensure that the market is fully and timely supplied." Statements and counter-statements on the issue were enough to indicate - the IEA and a group of its largest and most important member countries were issuing contradictory assessments about the market and the need for stock releases within less than 12 hours. A rift was apparently open between the agency and its most important members, led by the United States. In this instance, the agency has fallen out spectacularly with its largest and most influential member over whether the loss of oil supplies and rise in oil prices as a result of sanctions on Iran, and a host of other more minor disruptions, qualifies as the sort of serious disruption that should prompt a response under the agency's charter. The temptation for emergency stocks to be employed to manipulate market prices, perhaps for short-term political advantage, has always been there. In 2011, the White House pushed for an emergency release in response to the loss of Libyan exports, and production problems in the North Sea, overcoming initial objections from other members, led by Germany and Italy, and a marked lack of enthusiasm on the part of the IEA and many independent oil analysts. Until 2011, there had been only two coordinated stock releases: at the time of first Gulf War (1990/91) and following Hurricane Katrina (2005). The relatively narrow definition of severe supply disruptions was shared by the Clinton and especially Bush administrations, minimizing the likelihood of disagreement. But the Obama administration has taken a much broader view of what constitutes a trigger for an emergency stock release. Its threshold for "a significant reduction of supply" and "price increase (which) is likely to cause a major adverse impact on the national economy" has proved much lower. After Hurricane Isaac shut nearly all of the Gulf of Mexico's oil production, traders have been speculating that the US could tap its Strategic Petroleum Reserve. White House spokesman Jay Carney said Tuesday that "all options remain on the table," but said there was "nothing to announce today." Tapping the US reserves during the election season would likely generate attacks from Republicans too. The Clinton administration drew criticism for opening the SPR in October 2000 as heating oil prices rose. But Hurricane Isaac could give the Obama administration some political cover, and hence the release is more likely now, analysts are speculating. And this is the issue. Politics has come to play a dominant role in the energy world. Rather than fundamentals controlling the markets, political expediency seems in control. And this is not fair to market fundamentals, one can't fail underlining - even if subtly - at this stage.
