International Oil Governance

Guest Opinion

The ownership and control of oil has been a force that has shaped the politics and wars of the world since Spindletop made it a valuable commodity. One of the first examples was the Red Line and Achnacarry Agreements of 1928, when oil companies conspired to control world oil prices. Then came the Mexican expropriation of 1938, followed by Iran's nationalization of the Anglo-Iranian Oil Company in 1951 and the coup that undid it, the founding of OPEC in 1960, and the wave of nationalizations that followed the 1973 embargo. The United Nations, through the General Assembly, declared the right of peoples and nations to permanent sovereignty over their natural wealth and resources. This principle was later integrated into the New International Economic Order.

History of International Energy Governance

Before 1974, no agreements with regard to trade in oil existed, even though it was the most traded commodity in the world. The 1973 Arab-Israeli War resulted in members of the Organization of Petroleum Exporting Countries (OPEC) increasing oil prices and deciding who would be allowed to buy it; pro-Israeli countries were not favored. In early 1974, the United States took the lead in convening an international energy meeting to create the International Energy Program under the International Energy Agency (IEA).

This worked well until 1979, when the Iranian Revolution resulted in a depletion of available oil from Iran and prices doubled. The Secretariat of the IEA never invoked the emergency provision of the agreement but instead attempted to negotiate. No agreement was reached, throwing the efficacy of that governance model into doubt. The Iran-Iraq War in 1980, the Gulf War of 1990-91, 9/11, and the Iraq War were other disruptions in energy supplies that the IEA helped to negotiate, but it never used its emergency powers. The difficulty in negotiating an agreement with Iran and the disruption in oil supplies have again demonstrated how this results in the volatility of oil prices.

Maybe most importantly, the IEA is a source of reliable data on the world's energy supply, producing the World Energy Outlook (WEO) publication each year. In 2008, it published Energy Technology Perspectives: Scenarios and Strategies to 2050, which argued that technology was critical to energy sustainability. The organization has continued to encourage technological innovation.

The International Energy Agency (IEA) monitors and responds to disruptions in the Strait of Hormuz because of the volume of energy shipments that pass through it—approximately one-fifth of the world's oil. When geopolitical conflicts block or threaten oil flows through the Strait of Hormuz, the IEA assesses global supply shortages, coordinates emergency oil reserve releases to stabilize markets, and pushes for the unconditional reopening of the strait to protect the global economy.

Geopolitical Energy Conflicts

Desert Storm and the Iraq War had obvious ties and interests in Middle Eastern oil and are often cited as motives for United States involvement. Not surprisingly, protecting our energy supply would be an important national security interest.

The recent arrest of Venezuelan President Maduro had obvious ties to oil, the most valuable natural resource in that country, now being managed by the United States.

Oil, through its ownership and possession, has dominated the geopolitics of energy. Up until now, the world has been engaged in a kind of whistling past the graveyard as countries passed through the Strait of Hormuz, knowing it was controlled by a country set on the complete destruction of the United States and many other countries.

International Law and the Strait of Hormuz Conflict

Before the present conflict, the Strait of Hormuz provided passage for more than 20 million barrels per day of crude and refined products. Saudi Arabia and the United Arab Emirates maintain pipelines that bypass the waterway, but most Gulf exporters have no economical alternative.

The United Nations Convention on the Law of the Sea (UNCLOS) set out ways to resolve such conflicts. The Strait of Hormuz is not merely a sensitive shipping lane but a strait used for international navigation, a characterization that triggers a specialized regime governing passage and the powers of the bordering state. Article 37 of UNCLOS applies to straits connecting one exclusive economic zone to another; Article 38 provides for a right of transit passage for all ships, narrower than freedom of navigation in that it must be exercised continuously and expeditiously; and Article 44 forbids bordering states from hampering or suspending it. The principle predates the Convention. In Corfu Channel, the International Court of Justice held that states may pass through international straits in peacetime without the prior authorization of the coastal state.

The United States as well as Iran are non-parties to UNCLOS. The United States treats the regime as customary and therefore binding on all states; Iran rejects that characterization, maintaining that the Strait of Hormuz is governed instead by its exercise of coastal-state authority over a territorial sea. The dispute points to whether Iranian conduct in the Strait breaches international law or whether Iran is exercising a sovereign right set out in UNCLOS.

But it is unlikely that this conflict will be settled in a courtroom. However, the IEA and its governance model could play a role in the transition of control of the Strait of Hormuz.

Final Thoughts

The ownership and possession conflicts over oil that have dominated energy geopolitics have now moved to its transport after decades of “whistling past the graveyard†by those who used the Strait but could not or would not confront the threat of Iran over control of the strait, with questionable legal authority.

If the IEA's prediction in its World Energy Outlook 2025 that oil demand will stop increasing in 2030 proves correct, perhaps all of these conflicts will become less urgent and will look more like the Holland Tulip Wars to future generations.

To read more articles by Professor Sutton go to:  https://profvictoria.substack.com/ 

Professor Victoria Sutton (Lumbee) is a law professor on the faculty of Texas Tech University. In 2005, Sutton became a founding member of the National Congress of American Indians, Policy Advisory Board to the NCAI Policy Center, positioning the Native American community to act and lead on policy issues affecting Indigenous communities in the United States.

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