Last Friday, while the world concerned itself with matters such as the contents of a mobile telephone belonging to the courier of the deceased ‘CEO’ of Al Qaeda and the ‘second chance tickets‘ applications process for the 2012 Olympics, we at Mediolana were instead transfixed by a story run by that rarest of things, a newspaper of record: the Financial Times reported on the move of the International Energy Agency (‘IEA’) to release 60m barrels of oil from its emergency strategic stocks during July 2011 to compensate for the loss from the market of Libyan output since that nation’s descent into a surreal international war. The 60m barrels are to be supplied in the ratio of 50:30:20 by the US, Europe, and Japan and South Korea.
The International Energy Agency is made up of 28 member states, all of which also belong to the Organisation for Economic Co-operation and Development (‘OECD’), the elite grouping of the ‘traditional’ global economy which includes countries such as the United States, Japan, the United Kingdom, Germany and France; the measure detailed above is only the third occasion since the IEA’s 1974 inception that it has released oil, and the first since 1991.
The more prescient of our readers might already have realised why Mediolana is staring at this development in much the same way as dot-com investors gawped at the paper valuation of their shares during the course of 13th March 2000:
1. Libya’s contribution to the world oil market in ‘normal’ circumstances is less than 2%. Yet disruption in what should be a peripheral energy supplier has engendered the kind of response usually reserved for events of huge geopolitical and energy market significance, such as the First Gulf War. The IEA – and by logical extension, the OECD – must therefore be extraordinarily exposed to any sustained upward movement in oil prices.
2. Any instability in a country which is actually an important player in the global oil market – Saudi Arabia, for example, which was estimated in 2009 to hold 18% of all proven oil reserves – could shatter any contingency plans that the IEA has in place.
Mediolana 