LONDON (Reuters) – In 1973, Arab members of the Organization of the Petroleum Exporting Countries brought the US economy to its knees. Now, the cartel created 60 years ago is more likely to take orders from Washington.
Ever since Saudi Arabia and other Arab OPEC members imposed their famous oil embargo as a punishment for US support for Israel during the Yom Kippur War, changes in global politics and an increase in American oil production have tamed the group.
While OPEC as a bloc has resisted U.S. pressure to lower oil prices for decades, most notably in 2011 during the riot against Muammar Gaddafi in Libya, its record over the past three years has been largely one of capitulation, these officials say.
Founded in Baghdad on September 14, 1960 to thwart the power of seven US and British oil companies, OPEC has repeatedly succumbed to pressure from Washington to pump more oil since US President Donald Trump took office early in the year. 2017.
Trump has regularly called for lower gasoline prices to help US consumers.
And when prices got too low for US drilling companies to make money this year, OPEC struck a deal to raise them slightly, in a deal spurred by Washington’s threat to reduce its military support for Riyadh, sources they told Reuters. reut.rs/3m4gBSr
“Trump orders from Saudi Arabia what he needs for the price of oil – and he is served,” Chakib Khelil, who was Algerian oil minister for a decade and OPEC president in 2001 and 2008, told Reuters. . “So OPEC has actually changed.”
The Saudi Ministry of Energy declined to comment.
The White House declined to comment.
Reuters spoke to eight current and former OPEC officials, who account for over a third of the group’s production, as well as analysts, traders and investors to ask how US sanctions against Iran and Venezuela have affected Saudi Arabia’s influence. within OPEC and if that changed the dynamic with Washington.
An OPEC official at the group’s headquarters in Vienna declined to comment, saying Reuters should ask member states. Oil and other government officials in Iran and Venezuela did not immediately respond to requests for comment.
US OUTPUT INCREASES
Saudi Arabia has been OPEC’s main producer for decades, giving it the greatest influence on politics, but the marginalization of Iran and Venezuela has only increased its influence.
Iran’s share of OPEC production has nearly halved to 7.5% since 2010, while Venezuela’s has dropped to 2.3% from nearly 10%, according to Reuters calculations based on OPEC data. Saudi Arabia’s share, meanwhile, jumped 7 percentage points to 35%.
Iran and Venezuela, which founded OPEC along with Iraq, Kuwait and Saudi Arabia, had regularly opposed any move to bring oil prices down in the face of US pressure.
Saudi Arabia’s increased dominance within OPEC also came at a time of increased U.S. oil and gas production, which turned the U.S. into the world’s largest oil producer and reduced its dependence. from foreign fuel.
U.S. production more than doubled in a decade to reach over 12 million barrels per day in 2019, according to the Energy Information Administration, as improved drilling technology made previously untapped reservoirs accessible.
OPEC data shows that the US share of the global oil market has doubled since 2010, while that of OPEC has decreased.
OPEC partnered with Russia and nine other oil producers in 2016 to form a group known as OPEC + to increase their collective leverage, but a senior Trump administration official said the new group’s influence is also decreased as US production increased.
“OPEC IS IN SERVICE AGAIN”
Trump has engaged more actively with OPEC than his predecessors, often on Twitter to comment on production decisions and changes in oil prices.
Trump has also developed a close relationship with Saudi Arabia’s de facto ruler, Mohammed bin Salman, or “MbS,” who relies on the United States for arms and protection against regional rivals such as Iran.
“There has never been a US administration more involved in international oil policy and OPEC than the Trump presidency,” said Gary Ross, founder of Black Gold Investors and an OPEC expert.
In 2018, when oil prices rose by more than $ 70 a barrel, a level Washington considered too high for U.S. consumers, Trump fired a flurry of tweets at the cartel.
“Oil prices are too high, OPEC is back there. Not good! “He tweeted on June 13, 2018, nine days before an OPEC meeting. When OPEC met in Austria on June 22, Trump wrote:” I hope OPEC will substantially increase production. You have need to keep prices down! “
Later that day, OPEC agreed to increase its production by one million barrels per day.
Two OPEC officials, who asked not to be identified due to the sensitivity of the matter, said Trump’s intervention on oil prices actually prompts the organization to discuss, or even adjust, its production policy.
And Trump’s Twitter feed has become a source of anxiety.
“I hope no tweets will follow,” a senior OPEC official told Reuters on April 9, 2019 after the price of oil hit $ 71 a barrel, a five-month high at the time.
Oil market observers, including OPEC officials, say the irony is that the price hikes in 2018 and 2019 were both mainly due to Washington sanctions against Iran and Venezuela, policies that cut by about 3 millions of barrels the daily production of oil.
Chart: OPEC 2010 and 2020 market share
IDEAL FOR INDUSTRY!
Earlier this year, Trump wanted something new from OPEC: a production cut, to help U.S. oil companies make money.
Oil prices plummeted due to oversupply caused by a price war between Saudi Arabia and Russia at the same time as demand plummeted due to coronavirus lockdowns around the world.
“I just talked to my friend MBS (Crown Prince) from Saudi Arabia, who talked to President Putin of Russia, and I expect and hope they will cut about 10 million barrels, and maybe substantially more, which, if it happens, it will be GREAT for the oil and gas industry! ”Trump tweeted on April 2.
On April 12, OPEC + agreed on a record cut in production equivalent to one-tenth of global production.
Reuters reported on April 30 that Trump had presented bin Salman with an ultimatum: cut production or risk the withdrawal of US troops from the kingdom.
Asked about the ultimatum at the time, Trump said, “I shouldn’t have told him.” He said he spoke to MbS by phone and that they were able to reach an agreement on production cuts.
The Saudi Arabian government press office did not respond to a request for comment on the April report.
“In summary, OPEC no longer makes decisions about what is best for its members economically, as it should according to its statutes,” Algerian Khelil said.
Chart: OPEC Crude Oil Production and US Oil Supply as% of World Total
“GIFT FOR TRUMP”
In 2011, when Libyan production was hit by the revolt against Gaddafi, Saudi Arabia tried to persuade OPEC to bring production to lower prices. But Algeria, Angola, Ecuador, Iran, Iraq, Libya and Venezuela resisted.
“Previously, you had a block that could get quite explicit and even reverse meetings,” said Samuel Ciszuk, who founded the consulting firm ELS Analysis and worked for the Swedish Energy Agency.
“Now, Iran and Venezuela still have votes, but they are marginalized and have such desperate economic and marketing situations that other countries are more careful about getting in line politically with them,” he said.
Former Iranian OPEC Governor Hossein Kazempour Ardebili told Reuters in 2018, when OPEC + had just increased production under pressure from Trump, that both OPEC and the broader group had begun to take action against the interests of their smaller members.
“They gave Trump an oil price gift while inflicting a loss of revenue on all OPEC members,” he said.
While there is no suggestion that OPEC is about to experience an exodus of smaller members due to the changing dynamic – and there have been new entrants – some countries have left.
Qatar stepped down in 2019, partly due to a political dispute with Riyadh. Another small producer, Ecuador, left this year and Indonesia in 2016. Both said they did not want to be bound by OPEC production quotas.
Others who may be dissatisfied with OPEC’s trajectory, however, intend to stay in order to still have a say.
As a source familiar with Iranian oil policy put it: “It is important to be a member of OPEC or OPEC + so that you can maximize your interests.”
Additional reporting by Dmitry Zhdannikov, Bozorgmehr Sharafedin and Marianna Parraga; Editing by Richard Valdmanis and David Clarke