The IEA and Opec: 50 years of prickly co-existence

Blondet Eliot/ABACA via Reuters Connect

The International Energy Agency and the Organisation of Petroleum Exporting Countries celebrate 50 years of prickly co-existence this year. The Paris-based IEA was founded in 1974 while Opec came into existence 14 years earlier.

By 1974, the bloc had already shown its willingness to defend oil producers’ interests against the oligopoly of the big Western oil companies. The year before, Opec took its biggest step towards a restructuring of the global market by imposing a devastating embargo against the US and others who had taken the side of Israel in the Yom Kippur war.

In retaliation, the IEA was set up as “an instrument of war” against Opec, as oil historian Daniel Yergin relates, explicitly to defend Western energy interests in case those uppity Arabs tried anything like that again.

Thus was born the confrontation at the heart of global energy infrastructure: buyers’ cartel versus producers’ monopoly.

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Neither side ever actually controlled their respective sides of the market equation to anything like monopolistic levels, but given their mutually antagonistic origins, it’s remarkable that the IEA and Opec have managed to rub shoulders pretty well over the decades.

True, periods of rising crude prices led to some friction, with calls from the IEA for production cuts often frostily rejected by Opec. And the use of IEA strategic petroleum reserves usually drew angry criticism from Opec.

But overall, the two managed to co-operate on what they agreed was the essential task – to secure supplies of oil to fuel a demanding and fast-growing global economy – most recently when they came together painstakingly to rebalance oil markets after the ravages of pandemic lockdowns in April 2020.

That collegiate approach seems to have all but disappeared over the past two years.

At the CERAWeek oil forum in Houston last month, two US Republican Congressional leaders made public an official letter to IEA director Fatih Birol, accusing him of becoming a “cheerleader” for the transition away from fossil fuels and neglecting the core mission of energy security.

That was just the latest shot in a pile-on of criticism from Opec and individual oil-producing countries. Last year Opec general secretary Haitham Al Ghais accused the IEA of “unjustly vilifying” the oil industry and engaging in “political advocacy” on behalf of the environmental lobby.

Prince Abdulaziz bin Salman, energy minister of Saudi Arabia, famously accused the IEA of being in “La La Land” when it appeared to advocate a complete freeze on any new investment in hydrocarbons (though the IEA disowned that interpretation of its 2021 message).

Among those without axes to grind, perhaps the most pointed criticism came from Bob McNally, widely respected independent energy consultant and former White House adviser, who wrote in the Wall Street Journal earlier this year: “Today, the IEA looks more like a climate-obsessed NGO”.

At the heart of the row is a decision in 2020 by the IEA to take into account future climate policies when setting its predictions for oil demand. This, the critics say, has led to a significant under-estimation of projected oil demand and damaging under-investment in hydrocarbons. “Green capture” is the phrase being thrown around.

The IEA stresses that energy security is still a core concern for its data analysts and policymakers, and that any new slant on climate and energy transition simply reflects the accelerating pace of global warming.

It would, of course, be a blind organisation that did not factor in changing circumstances when making complex projections, but the IEA does appear to have changed its mind quite dramatically on several major issues of energy policy in recent years.

On the need for hydrocarbon investment, on the effect of the invasion of Ukraine on Russian oil supply and on future demand forecast, the IEA has quite simply got it wrong. It has had to alter its forecasts, sometimes within months of the faulty but headline-grabbing initial statement.  

Prince Abdulaziz said earlier this year of the IEA: “It takes a really special talent to be consistently wrong,” and contrasted the agency’s recent track record with that of Opec, which has generally got the calls right on big market issues.

Does it matter that two big bureaucratic energy organisations are throwing jibes at each other over mere words?

Well, when the words concern two of the most urgent issues facing the world today – energy security and climate change – it can hardly matter more.

Beneath the barbs and bombast, the lives and livelihoods of all of us are being decided.