The global energy crisis, exacerbated by the blockade of the Strait of Hormuz, has laid bare the vulnerability of developing nations, which are ill-equipped to handle the shock. While the International Energy Agency (IEA) has coordinated a release of emergency reserves to ease prices globally, this move has exposed the lack of stockpiles in many developing countries. The IEA, comprised exclusively of industrialized OECD nations, represents only 16% of the world's population, yet its actions have significant implications for the rest of the world. This raises a deeper question: How can the IEA effectively manage global energy security when its membership and influence are so skewed?
One thing that immediately stands out is the disparity in oil buffers between developed and developing countries. The IEA's 32 member countries, which account for only 16% of the global population, hold a combined 1.2 billion barrels of public reserves, with an additional 600 million barrels held by private industry. In contrast, developing countries, which make up the majority of the world's population, often lack sufficient reserves to cushion the blow of energy price shocks. This is particularly concerning given the high costs associated with building, maintaining, and governing strategic petroleum reserves.
What many people don't realize is that the IEA's influence over oil prices has diminished as the economic influence of countries like China and India has grown. This has led to greater risks to global energy security, as the IEA's sway over the market is now shared with a smaller group of nations. The smaller the share of OECD nations in global demand, the smaller the share of the market organized under the IEA, and the greater the challenge of effectively buffering market swings.
From my perspective, this crisis highlights the need for a more inclusive and representative global energy governance system. The IEA's current structure, which excludes major economies like China and India, is no longer sufficient to address the complex challenges of global energy security. Developing countries should be given a greater say in the management of global stockpiles, and regional agreements on issues such as cross-border electricity trade, emergency energy sharing, and joint financing for strategic infrastructure could provide a more effective solution.
However, efforts to provide alternatives to the IEA would likely face practical limitations. Regional supply-sharing agreements offer limited protection during a synchronized global shortage, as an entire regional bloc may find itself simultaneously without excess product to share. Nevertheless, the energy crunch is likely to spur developing countries to push for a greater say in the management of global stockpiles, and this could be a catalyst for much-needed reform in the global energy governance system.
