The American consumer likely won’t have to dig as deep this summer to pay for gas. A sluggish U.S. economy, prolonged fears about the eurozone, and U.S. crude supplies reaching a 22-year high have all contributed to a downward trend for crude oil prices, after hitting a US$128-a-barrel peak in March. OPEC also reports that, despite global growth demand reaching 900,000 barrels per day this year, supply is more than enough to meet demand.

Much of the pricing of oil in recent months has to do with geopolitical factors, says Aldo Flores-Quiroga, the recently elected secretary general of the Riyadh-based International Energy Forum (IEF). The IEF is a platform that brings together 89 countries that produce over 90% of the global supply and demand of oil and gas. Forum members include oil producing and consuming nations, transit countries and bodies such as the Organization of Petroleum Exporting Countries (OPEC), and the International Energy Agency (IEA).

The forum was founded in 1991 to foster discussion on energy security, and in March held its biennial ministerial meeting in Kuwait, which was attended by delegations from the U.S., Iran and other countries. Flores-Quiroga speaks with Arabic Knowledge at Wharton about fears over oil prices and supply amid further sanctions on oil producer Iran, and the impact of continued outages at energy producers.

An edited transcript of the conversation follows.

Arabic Knowledge at Wharton: Are oil prices likely to remain high, given outages in countries such as Yemen and Syria and fears over a confrontation with Iran?

Aldo Flores-Quiroga: What we have right now is no shift in expectation with respect to market fundamentals and with respect to the geopolitical factors. There is no shift from what we were seeing a couple of months ago. From what we are seeing at the IEF, the discussions are still open and certainly geopolitical factors are playing a role, certainly fundamentals are playing a role and certainly financial markets are participating more.

From the IEF perspective and the information we have from both consumers and producers, we don’t see an oil market that is under conditions of stress from the physical point of view. There is enough spare (oil production) capacity to cover for any disruptions that are now being observed or reasonably expected in the market.

Arabic Knowledge at Wharton: You said there is no expectation of a shortage and there is enough spare capacity, but the U.S., France and U.K. are in discussions for a possible release of strategic petroleum reserves. If there is a discussion between these three countries about a possible release, doesn’t that indicate there is a fear over supply and maybe the availability of enough spare capacity, given that the only country with enough spare capacity to replace disruptions is Saudi Arabia?

Flores-Quiroga: The fact the discussion is taking place is not new. Countries in the IEA have always discussed how best to use their strategic petroleum reserves. The policy has been only if there is market disruption to use these strategic reserves. Those shortages don’t appear to be significant and there is still enough capacity. We expect production from Iraq, Libya, and Angola will still be coming to the market. If you add to that the spare capacity that exists in the Gulf, if you add to that the reduced growth in demand given the growth expectations for the global economy, the market right now is overall balanced.

Arabic Knowledge at Wharton: Given the tense political situation between members of the IEF, like Iran and U.S. and other countries, how do you expect to maintain a dialogue in the light of tightening sanctions and worsening political ties?

Flores-Quiroga: The encouraging news is that these countries and the rest keep having conversations under the IEF. They were present in the ministerial meeting in Kuwait in March and they continue to be present under the executive board of the IEF. I saw a very responsible behavior from both sides in terms of continuation of exchange of points of views. The IEF was successful in bringing so many delegations together and there were conversations in the plenary room, but also hundreds of conversations on a bilateral and regional level and they covered a broad spectrum of issues.

Arabic Knowledge at Wharton: Summer is approaching, and energy consumption in the Gulf region will increase. At the same time it is U.S. driving season and already prices of gasoline have increased in the U.S. There is also going to be the implementation of European ban on Iranian oil purchases. There will be a number of factors that are going to put pressure on consumption. Is the world prepared for such demand?

Flores-Quiroga: This demand has been factored into production plans and expectations for a long time. It is not the first year that seasonal increases in demand occur. These increases are still affected by the overall economic activity not only in the U.S., but the whole planet. By all accounts, this is going to be a year of less economic dynamism than previous ones, and it will be such that it will be tempering any increase in demand and that should also reduce pressure on existing capacity. There is enough capacity if you put together the moderate demand growth and increase in production.

Arabic Knowledge at Wharton: In terms of spare capacity, the only country that is expected to cover shortages is Saudi Arabia, and it has already been pumping close to full capacity in response to demand from the market and continued outages in some countries. But if there is a closure of the Strait of Hormuz, where most of this oil goes through, that is going to create a bottleneck and the country with the most spare capacity lies next to that important channel. Doesn’t that complicate the reliability of the spare capacity that exists right now?

Flores-Quiroga: What I see again is an ongoing conversation that has happened every time there had been geopolitical concerns in any part of the world that may affect the flow of oil or any other commodity. Right now we are seeing a diplomatic process that is taking place and there is no reason to suspect that the diplomatic process has not been in any way useful or successful

Arabic Knowledge at Wharton: Should there be alternative routes for ferrying all that oil and not just relying on the Strait of Hormuz. Do you think there should be contingency plans just in case something does happen in order to try and deliver that oil to the market?

Flores-Quiroga: We need a robust energy system for the whole planet to the extent that the routes for trade of any commodity are diversified we will have a much stronger energy sector. Contingency plans are implemented every single year in every region in world because there are a variety of factors that disrupt the production of oil. There is nothing particularly new about the contingency plans. When natural disasters have taken place there were contingency plans to deal with the impact on oil supplies. We have choke points in different sections of the planet and we have more diverse routes for putting oil where it is demanded.

Arabic Knowledge at Wharton: Countries are investing in renewable energy and shale oil and gas production. For several producing countries they are footing the bill for the future capacity. How are they expected to foot this bill when consumers are looking for alternative resources that might diminish demand for oil production from conventional sources?

Flores-Quiroga: We have a global market and we have more reserves coming from North America from gas and tight oil, and that means there will be more oil available to other regions of the world. Should North American oil be consumed in North America, this means good news for the stability of the oil and gas markets. If we focus on renewable energy, they are not going to replace oil and gas. We are going to be living in the age of hydrocarbons for a while. There has to be major technological breakthroughs that have to be accompanied by a major economic breakthrough in existing technology to make this technology marketable and that is of course very hard to predict.

Arabic Knowledge at Wharton: With regard to the IEF, what kind of tools and mechanism does it have to bring consuming and producing nations closer?

Flores-Quiroga: It is the central mission of IEF to produce information that is timely and reliable on the supply and demand balance, in collaboration with other organizations that participate in JODI (Joint Organizations Data Initiative), we have been working on the oil markets and we have a task to extend that to the gas markets. This initiative is important. It comes from the producer and consumer dialogue. We are now advancing in a couple of areas with respect to JODI.

First, we have a more complete questionnaire for countries that participate in providing energy statistics, in oil production and demand. We also have the agenda of extending it to gas. The other very important component that we have just began is working on the statistics about the investment programs and existing capacity to produce, consume and distribute oil and gas. This is a very important contribution to the discussion. If we make the oil market more transparent through JODI, our conviction is that we are going to be making a significant contribution with all organizations that participate in JODI to clear some of this uncertainty and questions that continually affect the oil markets.

Arabic Knowledge at Wharton: In terms of the statistics and figures that are coming out of JODI, how much interest do countries and companies have in them and how are they helping companies and countries in terms of their policies for oil supply and demand?

Flores-Quiroga: We are seeing growing interest in JODI. It is still a work in progress because we have to develop capacities in many countries in order to have the most complete database. It is he helping by bringing these producers and consumers together so they at least exchange their points of views, even their intention with respect to investment plans and the like. We hope to have statistics on gas at some point in this year. The other statistics are still being developed.

The challenge here is that we have too many countries that are participating but countries have different methodologies, different institutional capacities, different human capital to use in the development of statistics and different legal frameworks. So when you count all of these things, the importance of JODI increases because with all partner organization we are trying to generate a common standard for the reporting of information: oil, gas and investment. It takes some time, but we are making progress.

Arabic Knowledge at Wharton: What other initiatives the IEF is planning or would like to undertake in order to help improve discussions about the oil market and improve transparency between producers and consumers?

Flores-Quiroga: The IEF and International Gas Union are organizing a ministerial meeting focused on gas. This is an activity we have contemplated for November and it is meant to help understand what is going on in the gas market and challenges ahead for both consumers and producers of gas. We are also promoting greater cooperation and understanding between national oil companies (NOCs) and International oil companies (IOCs) and we will be holding a forum at the beginning of next year on NOC and IOC cooperation. We are having gas data transparency workshop next month in Doha. We will also continue to hold forums on energy efficiency. We will also continue to partner with countries and organizations to advance this agenda. We are very happy that the IEF continues to grow in membership. There is increased interest in what dialogue can provide. When the IEF started, there were less than half of these (current) members participating.