Dmitry Zhdannikov, Noah Browning

LONDON (Reuters – According to two sources, the United States declared a record-setting release of emergency reserves in March, without consulting any partners in the International Energy Agency. It left the agency scrambling to make up the difference with their own releases.

Washington taking unilateral actions to deal with global supply and price problems could cause a rift between the U.S. and the IEA. This is the world’s energy watchdog, which normally supervises international release from emergency stockspiles. Questions about their continued relevance may arise.

After the 1973 oil price shock, the Paris-based IEA was created to provide energy supply to all its member countries in case of war or embargo.

According to sources, the group members are concerned that the U.S. President Joe Biden uses the Strategic Petroleum Reserve to reduce domestic inflation, rather than protecting consumers from disruptions in global supply.

A source who was familiar with diplomacy surrounding the release stated that “the IEA was embarrassed” by the U.S. release.

“It is the common understanding of IEA members that we must cooperate as a whole,” said another source, this one from an IEA member country, who said the U.S. announcement came as a surprise.

The IEA told Reuters it had been in close contact with all member countries including the United States in the run-up to its two stock release announcements this year: “This consultation as well as the decisions for taking collective action were conducted in line with IEA procedures.”

The U.S. Department of Energy said the United States had been in “frequent contact” with the IEA and its member states on energy security leading up the announcement, but confirmed its decision to release the oil was “independent” of the IEA.

The United States did not respond to a question about whether it had shared the volume and timing of the release in advance.

“The United States and other IEA members countries can and have, independently, released oil from their strategic reserves separate from any IEA collective action,” the department said in a statement to Reuters.  

The White House didn’t immediately reply to Reuters’ request for comment.

STRANGE OPTICS

The issue here is the U.S.’s March 31 announcement that 180 million barrels of oil would be released from the SPR at 1,000,000 barrels per hour to lower global energy prices. This will also address the reductions in Russian oil supply since February’s invasion of Ukraine.

The sources told Reuters that Washington had not informed the IEA or its members that the announcement was coming – a break with past precedent – and that the record-sized volume, over three times bigger than any previous release from the SPR, was a surprise.

One day prior to IEA members meeting to discuss a coordinated releases, the U.S. announced this. After the meeting which was led by Jennifer Granholm from the U.S Energy Department, the IEA declared that a coordinated release had been reached but did not provide details on the volumes.

At that point, the IEA’s leadership began bilateral meetings with other members to cobble together contributions, according to the two sources. The IEA secured non-U.S. commitments to allow it to open another 60,000,000 barrels.

However, the 60 million barrel figure is not significant. Per the IEA’s rules, a member country’s contribution to a coordinated emergency release should roughly match the proportion of its oil consumption within the group.

The IEA should have contributed roughly the same amount as the U.S. contribution, considering that the United States consumes about half of the world’s consumption.

“That wasn’t doable,” the source familiar with the diplomacy said. It was impossible because no one has such stocks.

“The optics of the release being done 75% in the U.S. and 25% in the rest of the world are simply strange,” the source added.

The IEA’s announcement glossed over the mismatch, detailing a 120 million-barrel release, with 60 million of that coming from the United States in the first two months – effectively ignoring the fact the U.S. aimed to keep the oil flowing for an additional four months.

The Biden administration’s release marked the second time in six months that it had signed off on a big drawdown from the SPR without the IEA’s blessing.

To tame rising oil prices caused by a rebound in demand following the COVID-19 pandemic, the United States committed to 50 million barrels of crude oil.

Although some IEA member countries like South Korea and Japan contributed to the release, the agency did not participate because there was no significant supply disruption at that time.

After Russia’s invasion, however, IEA member countries saw fit to organize a coordinated release. On March 1, they announced a release of 60 million barrels – half from the United States – to counter likely disruptions to supplies from Russia, a leading global oil and gas producer.

DOMESTIC CRITICISM

Biden’s Republican rivals have attacked him for his decision to remove the 180 million barrels of oil from U.S. stockspiles. They claim that it was a political move and that he should encourage domestic oil production.

Record-high prices for gasoline in the United States are seen as a top vulnerability to Biden’s Democratic party leading into mid-term elections in November.

Biden campaigned on the promise of phasing out fossil fuels in order to combat climate change. However, his administration hasn’t succeeded in imposing any restrictions on the industry. In recent months, he has urged drillers and other producers to increase production to lower prices.