Determination of Oil Price in the International Emergency Sharing System

ID-83-15: Published: Nov 12, 1982. Publicly Released: Nov 17, 1982.

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Pursuant to a congressional request, GAO reviewed several aspects of the participation of the United States in the International Energy Agency (IEA). Specifically, GAO reported on the involvement of the United States in the fourth test of the IEA Emergency Sharing System (ESS) scheduled for the spring of 1983 and the major issue of pricing considerations.

GAO found that many IEA member governments and oil companies as well as the IEA Secretariat agree that a market-oriented system of price determination is preferable in an emergency, but that there is no consensus on how this policy is to be implemented. Since the ESS provides for government intervention in the event voluntary sharing proves unworkable, a failure to resolve price disputes in an actual emergency could lead to government-directed allocation of oil. The majority of IEA governments, oil companies, and the IEA Secretariat support the inclusion of price considerations in the forthcoming ESS test; however, the United States and West Germany disagree on the mechanism for testing price and, without a consensus, pricing considerations will not be included in a test. In addition, differences remain between the United States and other countries on pricing principles to be used in an emergency. GAO concluded that the resolution of these differences is necessary to minimize the problems that might be encountered if and when the emergency system is activated.

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