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An OPEC disaster moment!
Last month, for the first time in history, Saudi Arabia failed to control OPEC’s discrete members. The June OPEC meeting couldn’t reach consensus – and such a situation has happened only once before in history. For whatever it’s worth, OPEC’s cartelized unity was important for the global economy and oil stability. What now?
“It was one of the worst meetings we’ve ever had. We were unable to reach an agreement.” That’s how Saudi Oil Minister Ali al-Naimi described the 12-member Organization of Petroleum Exporting Countries (OPEC) meet that was held in June this year. The meet concluded with fissures emerging within the group. On one hand, Saudi Arabia, along with Kuwait, Qatar and the UAE, proposed an increase in group crude oil output by 1.5 million barrels a day to 30.3 million barrels a day; while on the other hand, member countries including Iran, Libya, Angola, Ecuador, Algeria and Venezuela warned OPEC of near-term collapse of oil prices. Critically, and dangerously, this is the first time that Saudi Arabia has failed to control the group! This diplomatic disaster gets further complicated when you consider the abysmal fall in OPEC’s market share over the last 6 years from 65% to 35%. The meeting ended sans consensus for the second time in OPEC’s history (the first instance was the meeting in the 1980s during the Iran-Iraq war)!
There seems to be a new power equation forming with Saudi Arabia on one side and Iran on the other. Interestingly, the member countries on Iran’s side have more oil reserves compared to member countries supporting Saudi Arabia. Venezuela (a prominent member of Iran-led group in OPEC), for instance, has more than 500 billion barrels locked under their part of the earth – around twice that of Saudi Arabia!
A close analysis reveals a pro-West and anti-West split. Undoubtedly, Saudi Arabia, Qatar, UAE and the likes would love to increase oil output to keep their dominance high and collect as many ‘petrodollars’ as possible. The other group is conceived to be a firm believer of an anti-West philosophy with Iran in the lead. As is known, US has imposed strict sanctions on Iraq and has very fragile terms with Libya (after NATO’s attack) and Venezuela (where US has imposed sanctions against state-controlled oil companies). These nations are more worried about international oil prices and demand-supply dynamics than America’s diktats. Moreover, for the first time in 36 years, Iran (the second largest oil producer in OPEC) was unanimously chosen for the presidency of OPEC last year. As a part of the rotation policy, the
baton has been passed to Iraq (a member of the Iran-led group) this year. This gives the Iran-led group an opportunity to defy US and its allies.
Moreover, the new hot spots of oil exploration across the world are threatening OPEC’s business at large. For instance, the Athabasca Oil Sands in Canada are estimated to have 1.7 trillion barrels of crude bitumen, out of which a large chunk is exported to US every day. Similarly, Jubilee Field in Ghana has reserves of more than 500 million barrels of oil; French Guiana recently found 700 million barrels of oil within their territory, the Aldous field of Norway is said to have 1.2 billion barrels of recoverable oil reserves and Mozambique discovered 7.5 billion barrels of oil in 2010.
Interestingly, OPEC, which has 78% of global oil reserves, produces only 35% of oil supply; while non-OPEC countries who possess 22% of global oil reserves, produce more than 60% of oil supply! Shockingly, OPEC collectively produces lesser oil now than it used to produce in the 1970s! A Wikileaks cable quotes Al-Husseini (former Executive Vice President for Exploration & Production, Saudi Aramco) thus, “It is possible that Saudi reserves are not as bountiful as sometimes described and the time line for their production is not as unrestrained as Aramco executives... would like to portray.
In fact, Saudi Arabia is ready to sell oil at a low price of $96 per barrel at the moment. In hindsight, it may seem bad business, but for cash-rich Saudi, it’s more of a political gain. This would ruthlessly destroy two emerging oil nations viz. Iran (as they won’t be able to achieve break-even and this would hurt their nuclear ambitions) and Russia (as a revenge for its veto in UN for Syria). And above all – the final blow – lower prices would dent the market of new oil-explorers in the near future. Saudi’s moves could, however, prove disastrous for the future of the weakening OPEC cartel. This lack of consensus and disregard within the two camps could eventually lead to disintegration of the cartel in the coming times, which would be disastrous for not only the power and clout the members enjoy but for the global economy. Irrespective of the irascible nature of its members, OPEC has been quite supportive in the past to assist economic growth by lowering or upping oil prices, whenever pushed by the West. If the OPEC breaks, the resulting free-for-all will leave global oil prices at the mercy of transnational corporations looking for more profit, than national governments mindful of global comeuppances.
By:- Sray Agarwal
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