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Oil supply deal puts pressure on Iran
By Robin Harding in Washington and Javier Blas in London, May 20, 2012 8:33 pm
The G8 countries ramped up pressure on Iran with an unprecedented joint agreement to release oil from their strategic reserves if there is further disruption to supply.
It is the first time the G8 has made a separate statement on oil and sends a strong signal to markets that there will be extra supply if sanctions or conflict with Iran lead to a surge in prices.
There have been increasing disruptions in the supply of oil to the global market over the past several months, which pose substantial risk to global economic growth, said the G8 leaders in a statement.
Looking ahead to the likelihood of further disruptions in oil sales and the expected increased demand over the coming months, we are monitoring the situation closely and stand ready to call upon the International Energy Agency to take appropriate action to ensure that the market is fully and timely supplied.
The statement on oil is the most concrete outcome of the G8 for the global economy and a valuable assurance for US President Barack Obama, whose re-election prospects this autumn are already threatened by high oil prices.
West Texas Intermediate, the benchmark US oil price, has fallen from $105 to $91 a barrel this month on concerns about global growth as the situation in the eurozone deteriorates. But it remains above the roughly $80 level that it traded at through much of 2010.
The course plotted by the G8 over the weekend signals that Washington and others no longer consider the use of strategic petroleum reserves as the oil market equivalent of a nuclear weapon only to be used in the most extreme circumstances. Instead, Washington sees now the potential to deploy the strategic petroleum reserve very much as a smart bomb.
The G8 statement also signals a more interventionist and political use of the reserves. In the past, the IEA has seen its remit as purely economic to offset a disruption in oil supplies.
But the G8 now appears to be using the reserves with political objectives in mind. Michael Froman, Mr Obamas deputy national security adviser for international economics, said the statement sent a signal to Tehran that the G8 would keep oil markets fully and adequately supplied during this critical time, in reference to the US and EU embargo on Iranian oil which comes into full effect at the end of June.
The shift in approach started almost a year ago during the uprising in Libya, when the IEA deployed the strategic reserve to fight a relatively small disruption to global oil supplies. Previously, the Agency responded only to much larger disruptions, such as during the first Gulf war in 1990-91, or the landfall of hurricane Katrina and Rita in 2005.
A European Union embargo on Iranian oil is anticipated to affect supply of around 500,000 b/d of Iranian exports, while US sanctions could potentially remove a similar amount from the market. Both sanctions officially take effect on July 1, although companies are already implementing the measures ahead of the official deadline.
The US-led invasion of Iraq in 2003, which knocked out nearly 3m b/d, was not deemed sufficient to require tapping strategic reserves.
Oil supply deal puts pressure on Iran - FT.com
By Robin Harding in Washington and Javier Blas in London, May 20, 2012 8:33 pm
The G8 countries ramped up pressure on Iran with an unprecedented joint agreement to release oil from their strategic reserves if there is further disruption to supply.
It is the first time the G8 has made a separate statement on oil and sends a strong signal to markets that there will be extra supply if sanctions or conflict with Iran lead to a surge in prices.
There have been increasing disruptions in the supply of oil to the global market over the past several months, which pose substantial risk to global economic growth, said the G8 leaders in a statement.
Looking ahead to the likelihood of further disruptions in oil sales and the expected increased demand over the coming months, we are monitoring the situation closely and stand ready to call upon the International Energy Agency to take appropriate action to ensure that the market is fully and timely supplied.
The statement on oil is the most concrete outcome of the G8 for the global economy and a valuable assurance for US President Barack Obama, whose re-election prospects this autumn are already threatened by high oil prices.
West Texas Intermediate, the benchmark US oil price, has fallen from $105 to $91 a barrel this month on concerns about global growth as the situation in the eurozone deteriorates. But it remains above the roughly $80 level that it traded at through much of 2010.
The course plotted by the G8 over the weekend signals that Washington and others no longer consider the use of strategic petroleum reserves as the oil market equivalent of a nuclear weapon only to be used in the most extreme circumstances. Instead, Washington sees now the potential to deploy the strategic petroleum reserve very much as a smart bomb.
The G8 statement also signals a more interventionist and political use of the reserves. In the past, the IEA has seen its remit as purely economic to offset a disruption in oil supplies.
But the G8 now appears to be using the reserves with political objectives in mind. Michael Froman, Mr Obamas deputy national security adviser for international economics, said the statement sent a signal to Tehran that the G8 would keep oil markets fully and adequately supplied during this critical time, in reference to the US and EU embargo on Iranian oil which comes into full effect at the end of June.
The shift in approach started almost a year ago during the uprising in Libya, when the IEA deployed the strategic reserve to fight a relatively small disruption to global oil supplies. Previously, the Agency responded only to much larger disruptions, such as during the first Gulf war in 1990-91, or the landfall of hurricane Katrina and Rita in 2005.
A European Union embargo on Iranian oil is anticipated to affect supply of around 500,000 b/d of Iranian exports, while US sanctions could potentially remove a similar amount from the market. Both sanctions officially take effect on July 1, although companies are already implementing the measures ahead of the official deadline.
The US-led invasion of Iraq in 2003, which knocked out nearly 3m b/d, was not deemed sufficient to require tapping strategic reserves.
Oil supply deal puts pressure on Iran - FT.com
