Holding an important meeting on a Friday in summer is a great way of ensuring minimal news coverage. Having a second meeting on the Saturday following virtually guarantees that by the time of the Monday morning newspapers and news shows, other issues probably will be higher on the agenda.
But this weekend could be different. Oil ministers of OPEC (the Organization of Petroleum Exporting Countries) will meet in Vienna to decide future oil supply volumes. Correction: make that “discuss” rather than “decide,” because it’s doubtful they will reach full agreement.
There was a time when America shuddered at what OPEC would decide to do. The upcoming meeting is important but its consequences are not that crucial for the United States. Other countries, though, likely will feel pain, giving the meeting relevance.
There are many angles to what will be discussed, depending on where you stand. Oil ministers worry about price and revenues. Oil companies concern themselves with profitability. Oil analysts get excited by the minutiae. Me? I am just an ordinary consumer, with concern for cheapness and reliability, who likes writing about it.
OPEC isn’t in chaos but the tensions inside the 14-member cartel are enormous. The price of oil has been creeping up and the $80-per-barrel level has been breached for the crucial Brent type, though as of the middle of this week its price was around $75. That’s expensive and slows world economic growth — which, in the long term, could reduce the demand for oil. That’s not in OPEC’s interest.
What about energy from U.S. shale? Wasn’t this going to be our savior from manipulation by OPEC? The jury is still out on that one, mainly because hundreds of independent American small producers do not necessarily act in concert, while OPEC governments usually have state-owned oil companies that can be ordered to turn the tap one way or the other. Plus, there are “infrastructure problems” in the United States — that’s jargon for not having enough big pipelines to take the oil from the Permian Basin or the Bakken to the refineries for processing.
The main tension on Friday will be the opposing attitudes of rival OPEC members, Saudi Arabia and Iran. The differences are many, and typically they don’t talk to each other, never mind sit with each other. They avoid direct insults but when Iranian Energy Minister Bijan Zanganeh criticized President TrumpDonald TrumpJury in Jussie Smollett trial begins deliberations Pence says he'll 'evaluate' any requests from Jan. 6 panel Biden's drug overdose strategy pushes treatment for some, prison for others MORE to the media on Tuesday, adding that “OPEC is not a part of the Department of Energy of the United States,” the implication was clear, especially in light of the report that the White House recently had asked the kingdom to boost production.
Curiously, the main oil policy difference between the two countries recently has flipped. Iran had wanted to keep prices low to maintain demand and market share. Now, with fresh U.S. sanctions pressure looming, it wants high prices. By contrast, Saudi Arabia had favored production limits to force prices up. Now it wants to restrain prices so demand is not diminished. (Both policies have been painful for Riyadh — revenues are insufficient to fund the ambitions of Crown Prince Muhammad bin Salman, aka MbS, to transform the economy.)
Saturday’s meeting will include more than just the OPEC countries — Russia, the main non-OPEC oil exporter, as well as others. Zanganeh reportedly won’t be there, though he and his Russian counterpart Alexander Novak may talk anyway.
The essence of the Saturday meeting will be Russia and Saudi Arabia agreeing to a production cut to fix the market for the next few months. They are the only producers with significant spare capacity to be able to bring extra oil on line quickly. There may be no agreement at the Friday meeting but the rest of OPEC, including Iran, will have to put up with what is agreed to on Saturday.
The United States will be a distant spectator at these two meetings, although we can expect a tweet or two from President Trump. The meetings may solidify a Moscow-Riyadh axis that has developed over the past three years, at least on oil. The first production-limiting partnership began three years ago during the Obama administration, partly as a response to Saudi exasperation with Washington.
Could this axis develop into other realms such as diplomacy or military equipment? Perhaps. As recent photos of Russian President Vladimir Putin watching a World Cup soccer game with MbS show, the friendship may be developing.
Simon Henderson is the Baker Fellow and director of the Gulf and Energy Policy Program at the Washington Institute for Near East Policy.