THE Opec+ (Organisation of Petroleum Exporting Countries and its allies including Russia) have formalised their association. During the Opec ministerial earlier the week, Moscow and Riyadh led two dozen countries to sign a charter, formalising the Opec+ group, turning in the process, the ad hoc coalition, into a formal group. Opec+, controlling about half of the total global crude output, is supposed to act as a hedge against any future oil market turbulence.
The growing Saudi-Russian amity on crude issues was already getting evident with the passage of time. The announcement of the decision to roll over the Opec+ output cut, by none else than President Vladimir Putin himself, after his meeting with the Saudi crown prince Mohammad bin Salman in Osaka, and, preceding the Opec formal moot, was enough to indicate, ‘who’ was controlling the ‘crude’ markets. No wonder, the Russians wanted to delay the Opec and Opec+ meetings until after the G-20.
The charter was also a confirmation of the inability of the Opec to influence the markets singularly. Times have changed. The emergence of shale, with the US output moving to the top of the table, ahead of both, Russia and Saudi Arabia, and crossing the 12 million barrels per day (bpd) mark, had literally changed the dynamics of the global crude markets. Saudi Arabia and Opec are no more in control of the events. They needed Russian support — to have some leverage on the markets.
And the charter is a manifestation of that. Implicitly, it is recognition of the long-term nature of the problem the Opec oil producers’ are faced with. Saudi oil minister Khaled Al-Falih himself acknowledged so, by saying that oil producers’ would need to “keep adjusting” until U.S. shale production eventually peaked.
As per Bloomberg, the understanding between the Opec and Russia was initially supposed to be a six-month fling, but instead, they now seem to have signed up for eternity. Opec Secretary General Mohammad Barkindo compared the pact to a “Catholic marriage” — underlining it would last for “eternity.”
But the ceremony didn’t go without wrangling. Smaller producers within Opec, including Iran, had been voicing their concerns for some time now. Although the ministers in Vienna reportedly endorsed the already announced the nine-month extension of the output cuts rapidly, then things got bogged down. When it came to agreeing to the new charter, as per media reports, Iran’s veteran oil minister Bijan Namdar Zanganeh put his foot down.
Zanganeh had already been critical of the growing dominance of Russia and Saudi Arabia in the group’s decision-making, insisting that the Opec+ charter should be governed by the statutes of the Opec, a proposal that would have bound Russia to the Opec’s rules. At that point, Bloomberg, quoting an anonymous source present in the meeting room, reported the meeting almost ended, with some suggesting that delegates should spend a few more weeks working on the proposed charter.
Algeria also reportedly joined the chorus, endeavouring to ensure that Saudi Arabia (and Russia) do not use the Opec+ charter to impose their views on the other members of Opec.
Eventually, a way out was found, in the typical Opec fashion: An Opec resolution, separate from the Opec+ charter, stating that the new charter would be “without prejudice to the sanctity of the Opec Statute.”
But does the new union mean dwindling of the Opec influence on the oil markets? So it seems. Qatar, although a small oil producer quit the organisation at the beginning of the year. Other smaller producers are also feeling being bull dozed by the growing Saudi-Russian ‘crude’ amity.
When Vladimir Putin announced last weekend in Osaka — not Vienna — that the Opec would extend oil production cuts, broadcasting a deal before the group had even met to approve it, it angered some. They were dismayed at the leading role, the non-Opec Russia, once seen as the group’s rival in oil markets was playing in shaping the group’s policies.
Zanganeh too expressed outrage about Russian President Putin’s pre-announcement, warning before their ministerial; it could mean the death of the organisation. “Opec is going to die with these processes,” he declared before the Opec oil ministers met to effectively rubber-stamp the done deal.
Although Opec has shown tenacity to prove the doomsayers, projecting the death of the Opec, wrong many times over the years and decades, yet this could be a crucial point in the history of the Opec.
Inarguably, the organisation has lost its teeth.
Published in Dawn, July 7th, 2019