This Isn’t Your Father’s OPEC Anymore – Foreign Policy
OPEC Conference President Saudi Arabia's Energy Minister Khaled . For decades, the oil price has been central to the U.S. relationship with. Geopolitical issues converged in an unlikely location this week—the conference of the Organization of the Petroleum Exporting Countries. The History of U.S. Relations with OPEC: Lessons to Policymakers. Jareer Elass and Amy Myers Jaffe. ENERGYforum. James A. Baker III Institute for Public.
The problem with promising to increase supply by returning to percent compliance with the original cuts is that only Saudi Arabia, Russia, Kuwait and the United Arab Emirates have the ability to increase production.
If the volume of overcompliance were shared among producers proportionally, that would imply an increase of aboutbarrels per day.
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If the production increase were allocated entirely to those able to boost output, so that the total volume of excess cuts were brought back to the market, that would imply a production increase of about 1 million barrels per day. That difference can have an outsized impact on price. In its press conference, OPEC refused to officially clarify, with different countries offering different interpretations to reflect their own concerns and interests. Despite the ambiguity, OPEC reasserted its relevance in Vienna through its willingness to cap prices, underscoring its reputation as a responsible supplier to the market.
In his remarks in Vienna, for example, al-Falih emphasized the importance of protecting consumers. But, even as OPEC reasserts its traditional role, the organization has been reincarnated in new form. Only Saudi Arabia has any meaningful amount of spare capacity because it is the only country that chooses, at a cost to itself, to produce significantly less than it otherwise could. Moreover, by interpreting the agreement to mean total output, rather than output by individual countries, would comply with the November deal, Falih gave himself the flexibility to increase output further if needed to cap prices.
That brings us to the second major change in OPEC: Falih even told the press that Russia was considering joining OPEC as an associate member, and both Saudi Arabia and Russia took pains to signal that the close working relationship they have forged on oil policy would persist. This new alliance between Saudi Arabia and Russia in managing world oil markets marks an important shift. While OPEC represented half of world oil production throughout the s, its share of global supply declined below one-third in the s, and now accounts for just over 40 percent.
Effective market management thus requires bringing more global producers into the cooperation framework. Deepening and possibly formalizing the Saudi-Russian oil alliance marks a potentially historic shift for OPEC, as past attempts to cooperate with Russia have consistently failed. For decades, the oil price has been central to the U.
This Isn’t Your Father’s OPEC Anymore
That would mark a new point of influence for Moscow in its strained relationship with Washington. It has certainly not been an easy task to advance the Organization's standing and influence, particularly given the nature of the oil industry at the time of its establishment. As I am sure you are all aware, the main catalyst for its birth came inwhen a group of international oil companies - the Seven Sisters - unilaterally reduced the posted prices of the crude they supplied.
At that time, these international companies were the dominant force in the oil market, playing the major roles and deriving the greatest benefits from all segments of the business, from exploration to final distribution. They controlled the quantity of oil extracted and sold, to whom it was sold, and at what price.
And decisions were made without ever consulting host Governments of oil-producing countries. So infive oil-producing developing countries - Iran, Iraq, Kuwait, the Kingdom of Saudi Arabia and Venezuela - came together around the premise of cooperation.
The founding of OPEC was a commitment based upon the need to safeguard their legitimate national interests and to ensure order and stability in the international oil market. It was about gaining the full sovereignty over their exhaustible non-renewable natural resources.
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Over the years, this cooperation has grown stronger as the Organization has evolved and become an established and respected member of the global energy community. In the years ahead, OPEC's dedication to the welfare of its Member Countries, the international energy market and the global economy will of course continue.
This very brief history underlines the importance OPEC attaches to cooperation and dialogue. It was an essential part of its founding, has been fundamental to its evolution, and will be a key element in the Organization's future.
Of course, the issue of cooperation is central to the main topic I have been asked to talk about today: OPEC has long recognized the importance of adopting a plurilateral approach to addressing major topical issues, involving dialogue and cooperation with other international organizations and interested parties. This applies to both direct oil industry matters, as well as related areas, such as environmental protection and sustainable development. This is due mainly to the hostile environment that prevailed when OPEC was born.
And there was a coming together and an understanding that in many respects our interests, particularly in regard to market stability, were, if not identical, at least similar. We have come a long way, from the early confrontation to the cooperation we see today. Today, the importance of dialogue between international organizations, particularly in terms of bringing together producers and consumers, has never been greater. The reason is that globalization, international trade and mass communication are bringing us all closer together.
We live in an increasingly interdependent world. This fact was clearly evident during the global financial and economic crisis.
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The knock-on impacts have been felt in almost all industries and in all countries across the world. And, with energy central to each and every one of us, it is critical that all stakeholders work together for market stability.
This is vital for the effective and efficient functioning of the global energy market. In the global oil market, while demand for oil is clearly set to grow in the coming years, a number of factors that could have both medium- and long-term impacts on supply exist.
This includes the policies of a number of consuming countries that offer an unclear picture of their impact on future oil consumption levels and overall energy demand.
There is a need to provide clearer policies that are reliable, predictable and not discriminatory.