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Oil Should Stay In Triple Digits: Analyst

Cyril Widdershoven

Cyril Widdershoven

Dr. Cyril Widdershoven is a long-time observer of the global energy market. Presently, he holds several advisory positions with international think tanks in the Middle…

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What The West Is Getting Wrong About OPEC

  • Despite calls from Washington, Brussels, and London, OPEC has consistently refused to increase its oil production as prices soar.
  • While OPEC maintains that it is an apolitical organization, the reality is that the foreign policy of Western countries has left it unwilling to intervene in oil markets.
  • Most notably, the determination by Western powers to revive the JCPOA agreement has angered Saudi Arabia and the UAE and likely influenced their decision-making.

Saudi Arabia and the UAE have been repeatedly called upon by Western leaders to increase oil production in order to counter soaring prices. So far, all requests have been bluntly refused by Riyadh, Abu Dhabi, and other OPEC members. Both Saudi Arabia and the UAE have made it clear that they plan to maintain the OPEC+ production agreement, an agreement that includes the participation of Russia. Saudi Arabia’s Minister of Energy, Abdullah bin Salman, and his Abu Dhabi counterpart, Al Mazrouei, have again and again emphasized their focus on the stability of the global energy markets regardless of geopolitical factors. As Abdullah bin Salman reiterated, OPEC has gone through major crises before,  including wars between member countries (Iran-Iraq), and even sanctions (Iran), without breaking up.

Officially, the reason that OPEC members won’t increase production is that they believe oil and gas markets are still struggling with the fall-out of COVID-19. OPEC+, originally set up to counter a major global oil glut in 2020, is now becoming a significant geopolitical power. The power of the cartel has forced Western and Asian oil consumers to become increasingly assertive in their demands of the group. In light of the ongoing Russian invasion of Ukraine, and the growing threat of Moscow’s militarization of energy, OPEC’s oil market actions are increasingly regarded as political. Try as they might, Riyad, Abu Dhabi, and other OPEC members will struggle to change the opinion of OECD countries on this front. OPEC’s recent decision to remove the International Energy Agency’s (IEA) oil market data and reporting from its official list will be seen by OECD states as further evidence of its political leanings. While OPEC officially rebukes all claims of political interference in its decisions, OPEC strategies are clearly linked to the geopolitical views held its members. The growing divide between OPEC and the West is not only based on oil and gas demand or differences of opinion regarding the global energy transition. The more fundamental divide comes from a lack of confidence between Western powers and the Arab world. President Biden may be enjoying plenty of support within Europe due to the position he has taken with regard to Putin’s invasion of Ukraine, but the same cannot be said of his relationship with the Arab world. OPEC’s strategy is currently being driven by Riyadh and Abu Dhabi, both of which are struggling to engage with what they see as a return of Obama-era policies. The impact of the Arab Spring, a civil war in Syria and Libya, and the removal of Egyptian President Husni Mubarak are all still fresh in the memory of the region. The fact that US president Biden is yet to meet with Saudi Crown Prince Mohammed bin Salman, or has reservations about Crown Prince Mohammed bin Zayed, is not being taken lightly. The current shifting of alliances by the Arab world, including Egypt, Libya, and even Algeria, towards the East, setting up or improving on strong relationships with China and Russia, is a clear trend. If the West is serious about influencing OPEC production, it will first have to rebuild trust among its allies in the region.

Related: OPEC Sees Smaller Oil Supply Surplus For Q1 2022

Perhaps the most significant issue when it comes to this lack of trust between Western and Arab nations is the Iran nuclear deal. Against the will of the Arab states in the Gulf and North Africa, the Biden Administration and European counterparts are continuing their efforts to reach a new Iranian JCPOA agreement. A potential JCPOA deal could potentially destabilize oil and gas markets while also angering key OPEC nations and Israel. As the U.S. and Europe doggedly pursue a new deal with Iran in the hope of ensuring additional oil supply, they should be wary of the potential costs of such a deal. While OPEC claims not to be political, the West’s relationship with Arab states will undoubtedly impact it’s ability to reason with the cartel. 

The attempts by Biden and other nations to tap into strategic petroleum reserves have proven to be ineffective in reducing the price of oil. Trust based on mutual interest is the only solution here. While OPEC leaders may claim that their assessments are based on market fundamentals, the reality is that oil and gas markets an always political. Washington and Brussels need to understand that a political solution is needed. When it comes to oil and gas markets, OPEC holds all the cards at the moment, and the West needs to engage with that fact.

By Cyril Widdershoven for Oilprice.com

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Leave a comment
  • Dan Scott on April 01 2022 said:
    Agree with many of your points. The common thread is stability. The Arab nations value stability in their form of sovereign governance, economies, and partners. The issue they have with the West is the inconsistency in all these areas. We change administrations (governance) regularly and that impacts our economic policies and views on partnerships. Though, I'm sure they do not prefer China, they know they will get consistency from them. China knows how to play the long game in achieving a century old strategy.
  • Mamdouh Salameh on April 01 2022 said:
    OPEC+ as the most influential player in the global oil market will always strive to achieve two major objectives. The first is a balanced and stable global oil market. The second is defending Brent crude oil prices of $80-$100 a barrel being the range of price the overwhelming majority of OPEC+ with the exception of Russia needs to balance their budgets.

    And while OPEC+ led by both Saudi Arabia and Russia tries to base its oil production decisions on the fundamentals of the global oil market away from politics, it doesn’t appreciate the repeated calls to them by President Biden and other Western powers to force it to raise its production beyond what it has been agreed upon by the group.

    The United States and the EU ignore OPEC+ totally when there is a glut in the market and rush to beg it to lift its production when prices soar in what can only be described as a hypocritical attitude. They are always seeking to serve their selfish interests even at the expense of the oil producers’.

    OPEC+ recent decision to drop to drop the International Energy Agency (IEA) as a secondary source of member oil production data was an inspired decision.

    I have always maintained that the IEA research is shallow, biased and politically-motivated with its sole purpose is to depress oil prices and oil demand by providing distorted information and sometime outright false data. Cases in point are abundant.

    (1) In 2018 the IEA projected that US crude oil production will be bigger than the combined production of both Saudi Arabia and Russia by 2025. How ludicrous one could be?

    (2) In 2021 the Head of the IEA Fatih Birol called for an immediate halt in investments in oil and gas to achieve what he described as net-zero emissions 2050 roadmap then a few weeks later he reversed course calling on OPEC+ to lift its oil production beyond its agreed volumes in support of calls by President Biden.

    (3) The Head of the IEA has become a cheer leader of US shale oil production exaggerating its potential to the extent that former Saudi Energy Minister Khaled al-Falih felt obliged at the Davos Economic Forum in 2018 to ask him to stop his hype.

    (4) Long before the Ukraine conflict came on the scene, Fatih Birol accused Russia of causing the energy crisis that has enveloped the EU in the second half of 2021 by undersupply the EU with gas when it was obvious that it was caused by the hasty policies of the EU to accelerate energy transition at the expense of fossil fuels.

    And while the choice of Wood Mac data as a secondary source is an acceptable one good one, the choice of Rystad Energy isn’t. The Norwegian Consultancy outfit is like the IEA another cheerleader and hyper of the potential of shale oil and also a producer of data aimed at distorting global oil demand and therefore depressing oil prices.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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