IEA Expresses Concern About High Oil Prices as it Celebrates its 30th Anniversary
(Istanbul) — 1 April 2004
The Governing Board of the International Energy Agency (IEA) expressed concern at yesterday’s OPEC decision to implement an oil production cut of 1mb/d effective 1 April 2004, given the high level of oil prices reflecting oil market conditions including low industry stocks. However, producers’ actions to provide adequate supplies to the market will perhaps be more important than OPEC’s announcement. Sustained high prices will continue to undermine global economic recovery.
World GDP growth may have been at least half a percentage point higher in the last two or three years had prices remained at mid-2001 levels. Higher prices are contributing to stubbornly high levels of unemployment and exacerbating budget-deficit problems in many OECD and other oil-importing countries. The adverse economic impact of higher oil prices is most severe in very poor highly indebted countries.
The Governing Board of the IEA met in Istanbul on 1 April to reflect on 30 years of Agency work since the oil crisis of 1973. Addressing journalists, Joan MacNaughton, Director-General for Energy, UK Department of Trade and Industry and Chair of the IEA Governing Board, said, “It is appropriate that we convene in Istanbul, an important energy crossroad, to look forward over the next thirty years”.
In globalising energy markets, solutions to energy challenges must extend beyond IEA countries to all the nations of the world, in particular those where many lack access to basic energy services. Energy policy must achieve a balance between energy security, economic growth and environmental protection.
Miss MacNaughton added, “I am confident the IEA will continue to provide valuable policy analysis and expertise and a forum for the exchange of views. The next 30 years will bring many new challenges and we expect the IEA to be there to help take them on”.
The Board expressed concern about today’s high oil prices as it discussed meeting broader energy challenges now and in the future. Many factors influence prices in the marketplace, but the Board stressed that persistently low inventories throughout the oil supply chain erodes security of supply, aggravates price volatility and stimulates speculation - not in the interests of either producers or consumers. IEA Ministers in 2003 emphasised the “importance of maintaining adequate stocks to anticipate seasonal needs and to promote oil market stability.”
“While much has changed since 1973, the importance of energy security – the core mission of the IEA – has not. The war in Iraq was a harsh reminder that the risk of an oil supply disruption remains real,” said Claude Mandil, Executive Director of the IEA, “Reinforced by close co-ordination among Members and dialogue with major producers and OPEC, I am convinced that IEA strategic oil stocks were crucial in managing the crisis.”
Beyond geopolitical events, other challenges are being addressed. The current global response to greenhouse gas emissions can be reinforced, and technology applications have even greater potential. Technical problems or accidents at energy facilities raise energy security concerns as shown by electricity transmission failures in a number of IEA countries and local concerns about new energy infrastructure must be answered. Best practices in demand side management should be shared more broadly.
Experience shows that market mechanisms are essential to meet all these challenges in a cost-effective way. But market forces may need reinforcement by government policy to achieve other public policy goals. Governments must set the policy framework for operators in the energy sector and enforce it through appropriate regulation. Regulatory design, implementation and enforcement need to promote investment and strengthen energy security.
The setting of this meeting in Istanbul has special significance. Strategically located at the crossroads of energy-supply routes from the hydrocarbon-rich countries of the Middle East and the Caspian region to Europe, it is playing an increasingly vital role in ensuring the energy security of IEA countries
Turkish Energy Minister M. Hilmi Güler who hosted the meeting, expressed the hope that participants would be able to appreciate first hand how the Turkish Authorities monitor and mitigate the risks that heavy tanker traffic in the Turkish Straits can have for human life, safety, the environment and cultural heritage.