OPEC is steadfast: the future is hanging in the balance
- Written by Vlad-Adrian Iancu
OPEC is and has been a boiling pot: a place where a meeting of the minds and, most importantly, a meeting of interests takes place. With power also come high ambitions. And when some of the most influential players of the oil industry come together it is guaranteed that sparks will start flying. Only one is needed to land on the powder keg that is international relations and the world could go up in smoke. The Organisation of the Petroleum Exporting Countries is in such a situation. Can it maintain a grasp on reality and still be relevant in this wildly unpredictable environment? Or will it crumble to pieces under the pressure of its own members’ ambitions? The answer seems to be in limbo for the time being. The Vienna reunion that happened on the 2nd of June held no revelation but rather gave us more of the same, the Doha failure repeated. The members are still struggling to agree on a definitive measure for regaining control of oil production. The rift inside OPEC is more and more see through, and the conclusion was that with no agreement for a new quota of oil production, every nation is doing what they see fit and the whole system is going haywire. We could say that they agree to disagree. The overall quota seems to be a utopian ideal. Meanwhile, each country preserves its own individual production goals and limitations.
The official OPEC production quota is 30 million barrels a day and has been the same since 2011. All things considered, inside the organization there have arisen tensions about this specific quota, seeing as some of the member states, lead by Saudi Arabia, have demanded that production is lowered in order to favour an increase in quotations. In April, the 13 member states have delivered 32.44 million barrels a day, approximately a third of the global oil production.
The tensions between Iran and Saudi Arabia seem to be escalating and harming the members of the ‘fragile five’ such as Venezuela and Nigeria. For all these financially struggling countries the market seems to be very difficult to navigate. Of course, to blame is the oil barrel price. Even though in the last few months it has entered an upward trend, peaking at 50 dollars a barrel before the reunion, almost double than in January when it had reached the minimum in more than 12 years, this is still just middle ground. For Venezuela, Nigeria, Algeria, Libya and Iraq the price is too high for collaboration between OPEC key members, but, alas, it is too low to help them individually. In order to generate an improvement for these countries’ economy the oil price should be at about 100 dollars a barrel. The Nigerian Oil Minister and OPEC President Emmanuel Ibe Kachikwu went as far as declaring that Nigeria needs every dollar that it can get and that while the market is indeed going in the right direction it needs to do so at an accelerated pace. This upward trend needs to continue in order to generate profits and new investments. If, on the other hand, it stays the same, this could spell disaster in the long run and lead to a drop in investments. It’s like standing in quicksand really: the right move could save you; a false one could doom you.
But oil prices may climb according to Sultan Bin Saeed Al Mansoori. The United Arab Emirates Economy Minister envisions that the price will climb to 60 dollars a barrel or more this summer. The world is indeed changing and one of the new players on the market is Gabon, the recently inducted 14th member of OPEC. Gabon has been in OPEC before, in 1975-1994, and with a production of just 240,000 barrels a day will become the smallest producer in OPEC, a position formerly occupied by Ecuador with 550,000 barrels a day. To put things in perspective we have Saudi Arabia with approximately 10.2 million barrels a day followed by Iraq at 3.8 million barrels a day. But Saudi Arabia is not just standing around with its fingers crossed and waiting for the future to unravel. It has recently started a program called ‘Vision 2030’ that will reform and revamp the economy in order to realize a future where they no longer depend on oil but rather see it as merely an option. If a country so rich in oil is doing this then we should ask ourselves what will the future look like. It’s literally do or die time.