Meeting of oil producing nations potentially historic
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The December 1991 collapse of the USSR had earth-shattering consequences. Among the most significant was the change to the structure of the global oil market, which led to a far less powerful OPEC.  Now, exactly 25 years after the Soviet break-up, that structure could undergo another pivotal change with Saturday’s meeting in Vienna between OPEC and non-OPEC producers. 

To understand how far OPEC global oil market dominance has reversed, consider this -- after peaking at 50 percent in the 1970’s, OPEC’s share of the global market today stands at only about 37 percent. This trend began with the post-Soviet development of oil resources by Russia and the Caspian producers -- Kazakhstan and Azerbaijan -- and was given further fuel in the 2000’s with the rise in U.S. and Canadian oil production.

After years of competition, OPEC and non-OPEC members will meet on Saturday for a discussion that may signal a change in the relations between these two groups – with potentially important geopolitical implications.

OPEC’s decision to cut global oil production by 1.2 million barrels a day, if fully implemented, will have a major impact on the global oil price. In fact, the announcement itself has already sent the price to its highest level in over a year-and-a-half. However, the 1.2 million mark can only be reached if the cut is joined by oil producers outside of OPEC, especially Russia – the largest non-OPEC oil exporter.

True coordination between OPEC states and the others would be quite exceptional and represent a significant shift. Russia has previously met with OPEC representatives and discussed coordinated action, but nothing much has come from these efforts.

Russia has never joined in a production cut. From the beginning of its oil production as an independent country, Russia viewed its separation from OPEC as a geopolitical asset, and a basis for cooperation with the United States, a major oil consumer.

Moreover, Russia and the other former Soviet oil producers have welcomed the West’s direct investment in their oil and natural gas sectors  and, unlike most OPEC members, encouraged foreign countries to be full partners.

While supporting the growth of Russian and other non-OPEC oil production was a feature of U.S. foreign policy for two decades after the Soviet breakup, Washington now seems indifferent to the cozying up between OPEC and non-OPEC producers. In fact, Washington has directly sought to inhibit the growth of Russia’s oil and gas production, since U.S. and European sanctions on Russia now target the Russian energy sector.

The American attitude towards this potential oil market coordination is, in part, due to the general breakdown in relations between Washington and Moscow, which gives the U.S. almost no influence over Russia’s foreign policy action.

An additional reason that Washington’s attitude changed is that, over the last two decades, the lines have become blurred between oil producing and oil consuming countries. For many years, a low global oil price acted as a growth stimulus for the American economy.

Today, the U.S. is both the world’s largest oil consumer and its largest oil producer, so a low price has a mixed impact on the economy. While it provides extra cash to consumers, it also hurts U.S. oil companies and, over the last several years, has led to bankruptcies and economic downturns in parts of North Dakota, Pennsylvania, Texas and other oil production areas. At the same time, Middle East oil producers are becoming rising consumers as their domestic markets grow. 

The potential for OPEC to reverse its decades-long decline in influence is not only being driven by its efforts to forge stronger relationships with non-OPEC producers, but also by the extended low price of oil. The core OPEC states have the world’s lowest production costs, so they are able to withstand low prices far longer than North America and other non-OPEC regions, where production is more cash-intensive.

The return of a greater share of global oil production to the hands of OPEC will create a new energy security challenge, due to the unstable nature of most of the Middle East member states. In the past, OPEC’s perceived power created geopolitical challenges. In the future, it could be the weakness of some of its members.

 

Brenda Shaffer is a visiting researcher and professor at Georgetown University’s Center for Eurasian, Russian and East European Studies, a Senior Fellow at the Atlantic Council’s Global Energy Center, and the author of the book Energy Politics.


 

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