In an interview with Al-Hayat that was held on the sidelines of the International Energy Forum in Kuwait, International Energy Agency (IEA) director Maria van der Hoeven announced that the IEA will tap member-state oil reserves if supplies are seriously disrupted. She said that she sensed that oil producers and consumers are concerned about the rising price [of crude]. She also said that representatives from the Organization of Petroleum Exporting Countries (OPEC) have declared that major price fluctuations are not in anyone’s interest.
Van der Hoeven said that while the demand for oil has dropped and supply is meeting [that] demand, prices remain too high. “There are some supply problems, given the absence of 750,000 barrels a day from Sudan, Syria, Yemen, and the North Sea. Industrial inventory is at its lowest in five years and can [only] cover 58 days’ worth of consumption," she added.
Responding to questions, she said that the agency "is constantly monitoring oil market developments in terms of supply and demand," and it found that "there has been an unexpected problem due to oil supply disruptions from Sudan, Syria, and the North Sea. OPEC’s Gulf members have raised their production accordingly, and if there is a serious shortage in supply we will intervene and tap the oil reserves of IAE states."
As to what the IAE considers a serious supply interruption, she said "this is a difficult question to answer because it is linked to global supply and demand. We have to see what the level of demand is, to what extent it is affected by a supply drop, and whether that shortfall can be compensated by non-OPEC countries or if OPEC can increase production. Oil producers should answer that question. But if there is an intractable problem then we will tap the strategic reserves."
Van der Hoeven said that everyone was concerned about high prices and added, "Price volatility serves no one because it makes the market less transparent and more fragile...Complaints about high prices are coming not only from industrialized countries but from developing countries as well."
She asked, "What can we do about these high prices?... If we look at the past decade, we notice that prices were constantly fluctuating but we also notice that price increases were the result of [global] hazards. The basic problem [here] is that we do not know to what degree the current price increase is associated with such hazards. There are different answers, and they are tied to expectations of various events and developments, as well as when the Iran sanctions take effect, how Iran will respond, and how other oil producer countries will respond...All of these factors cause prices to rise because they are founded on uncertainties."
Van der Hoeven said that statistics show oil prices to be substantially high. She declined to predict a new oil shock in the event that Iran is militarily attacked, [something] which may cause oil prices to reach 200 dollars a barrel. She said, "We have always seen a decline in economic activity when oil prices reach these levels. Such price levels could represent 4 to 5% of GDP. It is uncertain whether that (the attack) will happen, and the answer depends on what the situation will be afterward and how long it will last. Those are political questions. Geopolitical tensions are out of our hands."
Al-Hayat asked her whether the dialogue between producers and consumers will lead to tangible results. She replied, "It all depends on whether there is mutual trust. Producer and consumer countries sit on different sides of the table, but we can have a dialogue between us and exchange information that both sides can rely on, so that the consumers have confidence that the producers can cover any shortfall in demand.”
She emphasized that the request by producer countries for a roadmap showing future demand from consumer countries is “not possible” because oil demand depends on the state of the economy. She added, "For example, we projected 3.6% global economic growth, and based on that we expected a demand increase of 1 million barrels a day. Lately, however, we lowered that to 800,000 barrels per day due to lower economic growth."
Van der Hoeven said, "Another factor is the geographical distribution of global economic growth. Will it mostly happen in developing countries, or in countries that are members of the Organization for Economic Cooperation and Development? For all these reasons, the IEA cannot project demand."