Publications: The Petroleum Economics Monthly

Doubling World Oil Prices: The Key Success of International Energy Agreements (August 2013)

Henry Kissinger, the former US Secretary of State, spoke at a celebration of the thirty-fifth anniversary of the International Energy Agency in 2009. In his speech, he complimented the IEA's energy security scheme: "Thanks to its 90-day strategic oil stock requirement and response mechanism, we now have a proven crisis management system that works. It remains our best protection against sudden oil supply disruptions."

Sadly, Secretary Kissinger failed to understand the real impact of the monster he created: the IEA's principal success has apparently been doubling oil prices from levels that would prevail had it never existed. Its influence has become particularly noticeable since 2004. Indeed, while certainly not the intended outcome, the IEA has excelled at raising global oil prices above free market levels we might otherwise have seen.

In this report, we argue that international energy agreements should be abandoned. Specifically, we assert that such agreements have failed because they encourage or require consuming countries to accumulate petroleum stocks to be used, supposedly, during supply emergencies. The agency's reluctance to release reserve oil at such times in effect sterilizes it, making it unavailable to the market and pushing crude prices higher.

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