The OPEC+ deal, with all reservations about its effectiveness and doubts about its sustainability, showed that in a crisis situation Saudi Arabia is able to negotiate with Russia. A grand deal between Moscow and Riyadh, of course, looks quite extravagant and even fantastic, but it is a serious threat to Washington. In the modern world, yesterday’s non-science fiction turns into stark realities of life.
The Organization of the Petroleum Exporting Countries (OPEC), which will celebrate its 50th anniversary in two years, has been buried many times. Several years ago the rapid growth of tight oil production in the United States led to a whole wave of such “funerals,” like “OPEC is dead, long live the new king.” From now on, such observers said, Americans will decide everything in the oil market, they can quickly increase or quickly drop production, having impact on the balance of supply and demand. They were credited as responsible for the oil prices collapse by 3.5 times in 2014-2015, down to $30 per barrel, allegedly implemented in order to “punish” Russia.
But the impact of low prices turned out to be short-lived and “non-lethal”, as President Vladimir Putin said. And, most importantly, the decline in oil prices hit the rest of the market, including all OPEC members, large oil and gas corporations and small American producers. And everyone began to work together with the aim to increase oil prices to a more acceptable level. Corporations began to invest less in expensive projects. American oil workers slowed drilling. The largest exporting countries invented a new format of interaction, OPEC+, when the cartel countries agreed with Russia, Mexico, Azerbaijan, and Kazakhstan to cut production by 1.8 million barrels per day. By the time the agreement was signed in autumn 2016, oil prices had already begun to grow due to the decrease in oil production in the United States by 1 million barrels per day. Ever since, oil prices steadily beat records of post-crisis times and by October 2018 they overcame $80 per barrel.
And, suddenly, something strange happened, defying the “death of OPEC” paradigm. US President Donald Trump demanded the oil cartel to cut prices or else. Simultaneously, the US Congress was considering the NOPEC (No Oil Producing Exporting Cartels Act) bill, which, if adopted, will allow US courts to sue third countries for cartel agreements. What is the point of fighting in such a way with those who are believed not to be able to really affect prices? It was not OPEC or even OPEC+ who helped them soar up to the level of $80 dollars per barrel. In fact, the OPEC members no longer comply with the agreement, although it is formally valid until the end of 2018. Russia is to achieve a record-high level of production this year. In October, the countries of the cartel produced 400 thousand barrels more than it was agreed. That was despite the fact that Iran is forced to reduce production due to US sanctions imposed by Donald Trump, and oil production in Venezuela fell due to the deep political and economic crisis. Should the NOPEC bill become a threat of prosecution for Donald Trump himself or for the government of Venezuela?
Of course, this is not the case. Over the 50 years of its existence and under unending sanctions against Iran, OPEC became a club where many people meet and talk, but only Saudi Arabia has the real ability to manipulate oil production. Riyadh is America’s closest ally in the Middle East. However, the OPEC+ deal, with all reservations about its effectiveness and doubts about its sustainability, showed that in a crisis situation Saudi Arabia is able to negotiate with Russia. This is a completely different situation, albeit spontaneously formed. A grand deal between Moscow and Riyadh, of course, looks quite extravagant and even fantastic, but it is a serious threat to Washington. In the modern world, yesterday’s non-science fiction turns into stark realities of life. Many things begin to make sense now. Both NOPEC and the case of the murdered Saudi journalist in Istanbul, and even the study on the consequences of the possible dissolution of OPEC, which Riyadh commissioned to international consultants (and which of course leaked to the American media).
Especially as during the meeting in Helsinki, Vladimir Putin proposed to Donald Trump to cooperate in the sphere of stabilizing world energy markets instead of fighting for them.