THE INTERNATIONAL ENERGY AGENCY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP83B00228R000100060003-9
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 14
• Document Creation Date: December 19, 2016
• Document Release Date: February 13, 2007
• Sequence Number: 3
• Publication Date: March 1, 1982
• Content Type: REPORT

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Directorate of on ldential
Intelligence
The International Energy
Agency
Confidential
EUR 82-10024
March 1982
Copy 4 .5
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Directorate of Confidential
Intelligence
The International Energy
Agency
Information available as of 19 February 1982
has been used in the preparation of this report.
The author of this paper is I Office
of European Analysis. It was coordinated with the
Office of Global Issues. Comments and queries are
welcome and may be directed to the Chief, European
Issues Division, EURA,
Confidential
EUR 82-10024
March 1982
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The International Energy
Agencyl -1 25
Summary During the oil crisis in 1973-74, governments of oil-consuming countries
realized that they needed a contingency plan to deal with oil-supply
problems. To counter OPEC leverage and establish cooperative means to
meet any future severe oil shortages, the major industrialized countries
created the International Energy Agency. Very much an American
initiative, the IEA has been referred to with some exaggeration as an
economic NATO and an oil-consumers' cartel. Despite the diversity of
energy interests and problems of its members, the Agency provides a
valuable framework along with the Organization for Economic Coopera-
tion and Development and the European Community for discussing mutual
energy problems and for formulating common energy policies for the
consumer nations.
The IEA has put its members in a better position than they were in to deal
with oil shortages, but conceptual problems and internal strains hamper the
effectiveness of the organization. It is not clear that emergency allocation
plans tested in simulated situations will work in a real crisis. Also, the IEA
has no mechanism for handling oil shortages of less than 7 percent. Such
small shortages include those that occurred during the revolution in Iran
and at the beginning of the Iran-Iraq conflict. More broadly, a consensus.
on ways to enhance energy security is lacking. Disagreement on the
acceptability of the Soviet gas pipeline provides a dramatic example of
differences over energy security.
Confidential
EUR 82-10024
March 1982
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Summary iii
The Secretariat, Governing Board, and Management Committee 2
Standing Groups 3
Standing Group on Relations With Producer and Other 6
Consumer Countries
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The International Energy
Agency
D
Membership and Objectives
Membership in the IEA is open to any of the 24
countries in the Organization for Economic Co-
operation and Development (OECD) that are able and
willing to meet the requirements of the Agency's
charter, the International Energy Program (IEP). The
charter, adopted provisionally on 18 November 1974,
entered into force in January 1976. There are 21
member countries:
Australia
Austria
Belgium
Canada
Denmark
Greece
Ireland
Italy
Japan
Luxembourg
Netherlands
New Zealand
Norway
Portugal
Spain
Sweden
Switzerland
Turkey
United Kingdom
United States
West Germany
France is the only major OECD country and the only
EC country that is not a member. Although many
French policies parallel in principle those of the IEA,
Paris prefers to follow an independent course with oil
producers, emphasizing bilateral relations. The
French Government believes that the energy policy
mechanisms of the EC and the Big Seven Summits
give it the same advantages of protection against
future oil shortages that IEA members have and
enable Paris to avoid the risk of alienating oil produc-
ers through association with the IEA.'
The IEA hoped that the newly elected Mitterrand
government would decide to join the IEA after its
recently completed review of energy policy, but Paris
merely pledged to continue its energy dialogue with
' The Big Seven-Canada, France, Italy, Japan, the United
Kingdom, the United States, and West Germany-hold annual
summits to discuss economic issues. Energy plays an important part
in these discussions. In preparation for the summits, the IEA
furnishes reports on energy performance and prospects to the high-
level Monitoring Group of Summit Countries. Decisions and rec-
ommendations that evolve from the summits are the basis for many
IEA policies] 71
the industrialized countries. France does participate
indirectly in IEA activities as a member of the
European Community, which has observer status in
the Agency and the right to state its views.
The common aim of the members of the Energy
Agency is to avoid, or at least minimize, economic
problems that result from energy shortfalls. Specific
objectives stated in the International Energy Pro-
gram-valid until at least January 1986-are:
? To promote the security of oil supplies on reasonable
and equitable terms.
? To take common measures to counter oil-supply
crises by developing self-sufficiency, restraining de-
mand, and allocating supplies among member coun-
triesequitably.
? To promote relations with oil-producing countries
and with other consuming countries, including less
developed countries (LDCs).
? To play an active role in relation to the oil industry 25
by establishing an inclusive international informa-
tion system and a permanent framework for consul-
tation with oil companies.
? To reduce long-term dependence on imported oil by
undertaking cooperatively to conserve energy, de-
velop alternative sources of energy, and engage in
energy research and development.
Organization
The IEA has a Secretariat, a Governing Board, a
Management Committee, and four Standing Groups
dealing with Emergency Questions, Long-Term Co-
operation, Relations With Producer and Other Con-
sumer Countries, and the Oil Market. These major
units are further organized into various other commit-
tees, groups, and subgroups.
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Composed of
ministers or their
delegates from all 21
countries
Composed of senior
representatives of each
participating country
Every group has one or
more representatives of
each participating country
Committee on Energy Emergency Questions
Research and (SEQ)
Development
The Oil Market
(SOM)
In addition, high-level groups have formed subgroups and
working parties to assist them with specific tasks as necessary.
I
586165 3-82
The Secretariat, Governing Board, and Management
Committee
The TEA Secretariat, which assists all organs of the
TEA and also serves as the Combined Energy Staff of
the OECD, is headed b Executive Director Dr. Ulf
Lantzke of Belgium.'
2 Dr. Lantzke has held this position since the creation of the
Agency.
Long-Term
Cooperation (SLT)
Relations with
Producer and
other Consuming
Countries (SPC)
The Governing Board is composed of ministers or
their delegates from member countries. The board,
which meets at least quarterly, appoints the Executive
Director and is charged with assuring the proper
functioning of the IEP by adopting decisions and
making recommendations. To fulfill its role, it must
keep abreast of international energy developments,
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including the economic and monetary implications of
such developments. The Board may delegate its func-
tions to any other organ of the Agency
proposals to the Governing Board on any matter
within the scope of the Agency's charter. It can be
convened upon the request of any member states
Decisions adopted by the Governing Board to fulfill
the obligations of the IEP are binding on member
countries; recommendations are not. Ministerial
meetings are held yearly. The focus of the ministerial
in May 1982 will be on endorsing a concept of
"energy security."
Standing Groups
The Standing Group on Emergency Questions (SEQ)
supervises the Emergency Allocation Scheme (EAS)
of 1974, which has been called the core of the IEA.
The scheme's purpose is to provide for equitable
sharing of oil supplies by member countries in the
event of an oil crisis.
The Governing Board's voting scheme-rarely used-
is complex and does not allow veto power to any single
country.' Votes are weighted in three ways:
? General, giving each country the same weight.
? Demand weighted, depending on a member's con-
sumption of oil.
? Combined, adding the general and demand weights.
A majority vote-60 percent of the combined vote
cast and 50 percent of the general vote cast-is
required to adopt decisions on the management of the
IEP. A unanimous vote is required to adopt most
other decisions, including those that impose new
obligations. Specific types of decisions relating to
emergency measures require a special majority. A
special majority includes a vote of 60 percent of the
combined voting weights and either 45 or 51 percent
of the general voting weights, depending on which
measures are to be voted on.
The Governing Board reviews the voting weights
annually. A decision to increase, decrease, or redis-
tribute voting weights because of a member country's
change in total oil consumption requires a unanimous
vote.
The-primary function of the Management Committee,
composed of senior representatives from member
countries, is to review reports submitted from the
Standing Groups. But the Committee may make
' The scheme was used for determining when the lEA would move
from a 60- to a 90-day emergency reserve commitment and for
determining how the elements specified in the charter should be
used in fulfilling the emergency reserve commitments. Other usages
of the voting scheme are specifically outlined in the charter.
The four major components of the scheme are:
? A commitment by member countries to maintain
emergency reserves-oil stocks, fuel-switching ca-
pacity, or standby oil production-capable of sus-
taining consumption for at least 90 days without any
net oil imports.4
? A commitment by member countries to reduce oil
consumption by 7 to 10 percent (depending on the
severity of the crisis).
? Equitable distribution of oil supplies-crude oil, all
petroleum products, all refinery feedstocks, and all
finished products produced in connection with natu-
ral gas and crude oil-based upon each country's
imports prior to any activation of the emergency
sharing procedures.
The process for activating the scheme is complex. It
begins when the Secretariat (with assistance from oil
companies) determines that either the IEA member-
ship as a whole or an individual member is experienc-
ing or will experience a 7-percent reduction in oil
imports. The Secretariat's findings are reviewed by
' Emergency stocks are computed as total oil stocks (crude and
products) less 10 percent to account for completely inaccessible
inventories (working stocks) required by the oil companies to keep
the distribution system operating. The number of days of emergen-
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the Management Committee and then by the Govern-
ing Board. Finally, activation of the scheme is con-
firmed unless the Governing Board, by special major-
ity, decides otherwise. An International Advisory
Body of oil companies implements the scheme.
Each phase of the activation process has specific time
limits; the entire process takes 23 days plus the time
required by the Secretariat to complete its findings. If
the Secretariat fails to make a finding upon the
request of a participating country, the Governin
Board can act faster by taking a majority vote
The IEA Secretariat is obligated to initiate a second
review process when the emergency drawdown obliga-
tions have reached 50 percent of emergency reserve
commitments.' The Secretariat again reports its find-
ings to the Management Committee and then to the
Governing Board. The board must decide within nine
days, by special majority, on the measures required,
including whether to move from 7- to 10-percent
demand restraint. Lastly, the board by unanimous
vote may activate "any appropriate measures beyond
those specified in the IEP Agreement." Similar proce-
dures are followed to deactivate the emergency
scheme. The emergency procedures would be carried
out in cooperation with the oil companies, and oil
would be distributed through normal channels and at
market prices.
long-term measures to reduce the dependency of
member countries on imported oil. The program is
aimed at:
? Strengthening energy conservation.
? Developing alternative sources of energy.
? Removing economic and political obstacles that
hamper accelerated development of indigenous
sources of energy.
? Stimulating investment in energy development, in-
cluding a strategy for energy research and develop-
ment.
The SLT regularly assesses the policy and perform-
ance of member countries on the four long-term IEA
goals. These reviews form the basis for IEA policy
recommendations to member countries.
In the area of conservation, the SLT assesses success
in implementing regulations, incentives for increasing
the efficiency of energy use in both residential and
commercial sectors, and progress toward deregulation
of oil and gas prices. The IEA's pricing policies have
been particularly controversial. Canada long opposed
the pricing of domestic oil at world levels but is now
moving its prices substantially in that direction. Prob-
lems exist throughout the IEA membership regarding
pricing principles for nonoil fuels and electricity.
Difficulties are compounded by differing national
regulations and controls. The pricing issue is expected
to be discussed at the spring 1982 ministerial meeting.
Although the scheme does not contain a formal
pricing mechanism, it follows a guideline that the
price of allocated oil will be based on price conditions
for comparable commercial transactions.
The Standing Group on Long-Term Cooperation
(SLT) agreed in 1976 on a Long-Term Cooperation
Agreement consisting of broad policy guidelines in-
cluding a concerted four-point program of specific
Looking at alternative sources of energy, the SLT
assesses progress in substituting coal and natural gas
for oil in industry. It also assesses efforts to study the
potential use of nuclear energy. Although all IEA
countries have agreed on the need to achieve struc-
tural change in energy supply, the IEA effort on
nuclear energy has varied. At the June 1981 ministe-
rial, the lEA called on member countries to take
prompt action to promote the use of nuclear energy
and to take other steps to enhance the use of nuclear
technology. Vocal opponents of nuclear energy, how-
ever, are causing some member countries to proceed
cautiously in this area.
' Emergency reserve drawdown obligations are defined as the
emergency reserve commitment of any member country divided by
the total emergency reserve commitment of the group and multi-
'2
25X
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Participating Countries Standing Group on
Governments - - - - - - - - Emergency Questions
(SEQ)
IEA Secretariat
Office of Information
and Emergency Systems
Operations
Participating
Countries Contact
Points
Office of International
Energy Agency
Allocation Coordinator
(IEA)
Regarding energy development, the SLT looks for
more incentives and fewer constraints for exploration
and development of indigenous energy sources and for
increased international trade in nonoil fuels.'
6 TEA members agreed in 1976 to establish a minimum safeguard
price to protect investment in indigenous energy resources. This
measure was designed to protect high-cost conventional energy
sources against a substantial drop in the price of oil produced
outside the IEA countries. The minimum safeguard-$7 per bar-
In research and development, the SLT assesses
growth in the funding and the numbers of R&D
projects.' The IEA now has 54 collaborative R&D
projects under way.
In addition, to promote measures aimed at reducing
dependency, IEA ministers agreed in 1977 to a group
objective of an oil import ceiling of 26 million barrels
per day (excluding bunkers) by 1985. In 1979 the goal
was revised downward to 24.6 million barrels per day, 25
' A high-level Committee on Energy Research and Development
has been created to promote cooperation on energy R&D ano
member countries.
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and IEA countries agreed to impose country-by-
country import ceilings. The SLT reviews the progress
of member countries in meeting these objectives.
Imports subsequently have fallen substantially below
the revised ceiling.
The IEA's policies to encourage structural change
have certainly played a role in the recent substantial
reduction in oil use and price, but economic recession
in the industrial countries has been a more significant
factor. The IEA is concerned that the recent down-
turn in the oil market and in economic conditions will
lead IEA members to curtail their political commit-
ments to the energy restructuring that is necessary t
avoid later problems.
The Standing Group on Relations With Producer and
Other Consumer Countries (SPC) provides a forum
for regular consultation and coordination among IEA
members on energy cooperation with oil-producing
countries and other consuming countries. Thus far
the activities of the SPC have been limited.
Most IEA members agree there is little to be gained
and much to lose by fostering a dialogue with OPEC
under current circumstances. OPEC does not oppose
the efforts of industrial countries to reduce oil con-
sumption and develop alternative sources of energy,
but it still views many IEA policies as confrontational.
The country that chairs Governing Board meetings
regularly informs an OPEC country-most recently
Saudi Arabia-of IEA decisions, Governing Board
meetings, and ministerial gatherings. IEA ministerials
are generally held prior to or concurrently with OPEC
ministerials.
Although the IEA recognizes the problems facing the
oil-importing LDCs, its relations with them have been
limited, and SPC activities have concentrated on
research and development projects. The IEA has been
criticized for failing to organize the developing coun-
tries and to capitalize on wavering Third World
support for OPEC. The LDCs believe that IEA
and would not permit them to change their relation-
ships with OPEC.'
Despite the failure of efforts to get importing and
exporting countries together, the idea of a dialogue
between producers and consumers as a means of
managing energy problems is still very much alive in
multilateral forums. In this context, the SPC moni-
tored closely the work of the UN Conference on New
and Renewable Sources of Energy held in Nairobi in
August 1981
The Standing Group on the Oil Market (SOM) is
responsible for providing a framework for regular
consultations in which governments of member coun-
tries can request information from oil companies on
all aspects of the oil industry. The SOM reviews the
results of these consultations and the information
collected.
Consultation with the oil companies is essential to
maintaining the information system on the interna-
tional oil market used not only by the IEA but also by
the Combined Energy Staff of the OECD. The infor-
mation system has two categories: a general section
containing data on oil companies and the internation-
al oil market and a special section on the oil situation
of member countries to ensure the efficient operation
of the Emergency Allocation Scheme.
The SOM reviews operation of the general section on
a continuing basis and reports changes in the condi-
tion of the international oil market to the Manage-
ment Committee. Data voluntarily supplied by the oil
companies through governments cover: corporate and
financial structure; terms of arrangements for access
to major sources of crude oil; current and anticipated
changes in production rates; oil stocks; and cost of
crude oil and oil products. Data supplied under the
special section include: oil consumption and supply;
demand restraint measures; and current and pro ected
levels of international supply and demand
First efforts at discussions involving industrialized countries,
LDCs, and OPEC (in which the IEA participated) culminated in
the 1975-77 Conference on International Economic Cooperation
(CIEC), which failed to obtain LDC agreement to a continuing
dialogue. Demise of the CIEC left the consuming countries without
a multilateral forum for discussion with oil producers.
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Cooperation between US-based oil companies, which
serve on the IEA advisory committees, and the IEA
has been facilitated by special limited exemptions
from US antitrust laws. These exemptions are in-
tended to allow oil companies to supply the IEA with
corporate supply-demand figures without becoming
vulnerable to antitrust suits for exchanging confiden-
tial data and colluding. However, because of the
limitations of the exemptions, oil companies at times
have expressed antitrust concern and have delayed
furnishing the IEA with data.'
The Secretariat is responsible for the operation of the
system. All information collected is handled confiden-
tially.
Outlook
Although the IEA has put its members in a better
position to deal with oil-supply cutbacks and another
crisis like that of 1973-74, conceptual problems and
internal strains lessen the effectiveness of the organi-
zation.
The 1979 shortfall was overcome by increased OPEC
production and OECD conservation, but only after
steep price increases. The 1979 shortfall in particular
highlighted the inability of the IEA to deal effectively
with problems faced by its smaller members
The IEA recognizes the need to deal more effectively
with short-term supply interruptions and has taken
steps to reduce the likelihood of temporary shortfalls.
For example, at both the December 1980 and March
1981 Governing Board meetings, ministers agreed on
measures to reduce IEA oil-import demand, to dis-
courage purchases of oil at spot market prices, and to
monitor oil supply and stocks.
Despite these measures, reliable concrete mechanisms
still do not exist to deal with subcrisis situations.
Some IEA members have opposed the creation of
such formal mechanisms, believing they would reduce
the very market flexibility needed to handle each
interruption as it occurs. The members agreed at the
ministerial meeting on 14-15 June 1981, however, to
national consultations with oil companies on ways of
improving the ability of member countries to respond
The Emergency Allocation Scheme has never been
tested in a real crisis and some IEA members doubt
that it will work effectively in an actual emergency.10
Three simulated allocation tests have been conducted,
the most recent in 1979-80, with mixed results.
Problems that surfaced during the third allocations
systems test included communications and data proc-
essing errors, difficulty in starting national sharing
programs, allocation gaps caused by uncertain trans-
port, and inability to export indigenous oil because of
national legal restrictions. The IEA, nevertheless,
considers the test a major success. A fourth alloca-
tions test is scheduled for late spring 1983; a major
goal will be a full test of pricing procedures
The IEA lacks a mechanism for handling oil-import
shortfalls of less than 7 percent. Such supply disrup-
tions occurred during the Iranian revolution in 1979
and in 1980 at the beginning of the Iran-Iraq conflict.
' The exemptions are contained in US Energy Policy and Conserva-
tion Act 252, which has been renewed several times and is
scheduled for renewal at the end of March 1982
10 In 1979 Sweden requested that the IEA activate the scheme on its
behalf. The IEA rejected Sweden's request but held privat
sations with oil companies to acquire more oil for Sweden
to small supply interruptions.
More broadly, many IEA members are concerned at
the absence of a working consensus on ways to
enhance energy security. Uncoordinated national ac-
tions such as those taken during the 1979 Iranian
revolution inevitably result from a lack of consensus.
Disagreement on the acceptability of the Soviet gas
pipeline provides a dramatic example of differences
over energy security.
25
25
The varying political, economic, and energy needs of
the member countries make the achievement of coo-
peration and coordination a problem. However, IEA
countries have ample incentive to continue striving for
the group's objectives of reduced dependence on im-
ported oil and increased energy security.
 Figure 3
International Energy Agency Membership
L
Canada
U
United States
Sweden
Norway
J.K. Denmark
Ireland - ; ."Netherlands
Portu9tt Spero f,7
,Greece
New I
Zealand '
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