The International Energy Agency Responds to the Libyan Crisis

On 23 June (2011), the International Energy Agency (IEA) announced the release of 60 million barrels of its members' strategic petroleum reserves in July. In justifying the move, the IEA cited the need to mitigate the effects of the Libyan crisis, but it has been interpreted as a call for the Organization of the Petroleum Exporting Countries (OPEC) to boost production and not jeopardize the economic recovery, as well as giving Saudi Arabia time to make the announced production increase materialise.

The announcement alone of the release of reserves had an immediate and significant effect on markets, although, as evidenced by the return of prices to pre-announcement levels, the effect was short-lived. While possibly ridding the market of some speculative operations, it is questionable whether it will change the dynamics of some markets whose broad underlying trends hinge on the fundamentals underpinning supply and demand, and the different projections suggest that in the next few quarters the oil shortage could continue. In this connection, the measure is not a sustained energy policy able to alter those market fundamentals over time, but it does imply that the members of the International Energy Agency (IEA) have decided to take the initiative with the measures implemented so far to pressure the Organization of the Petroleum Exporting Countries (OPEC), and show Saudi Arabia that they are waiting for the production increase it promised.