Russia has played a master stroke in the current oil crisis by taking the lead in forming a new cartel, but it’s a move that could spell geopolitical disaster.
The meeting between Russia, Qatar, Saudi Arabia and Venezuela on 16 February 2016 was the first step. During the next meeting in mid-March, which is with a larger group of participants, if Russia manages to build a consensus—however small—it will further strengthen its leadership position.
Until the current oil crisis, Saudi Arabia called the crude oil price shots; however, its clout has been weakening in the aftermath of the massive price drop with the emergence of US shale. The smaller OPEC nations have been calling for a production cut to support prices, but the last OPEC meeting in December 2015 ended without any agreement. Related: Genel’s Stock Takes A Hit As It Slashes Reserves In Half
Now, with Russia stepping in to negotiate with OPEC nations, a new picture is emerging. With its military might, Russia can assume de facto leadership of the oil-producing nations in the name of stabilizing oil prices.
Saudi Arabia has been a long-time U.S. ally, but that, too, is changing. Charles W. Freeman Jr., a former U.S. ambassador to Riyadh, recently noted that “We've seen a long deterioration in the U.S.-Saudi relationship, and it started well before the Obama Administration.”
U.S.-Saudi relations further soured due to the Iran nuclear deal that ended in January with the U.S. lifting sanctions—a move the Saudis vehemently opposed. The Saudis had to look for a new ally to safeguard their interests in the Gulf, considering the threats they face from the Islamic State (ISIS) and Iran. Though both Russia and Saudi Arabia are on opposing ends in Syria, with Russia supporting Syrian leader Bashar al-Assad and the Saudis supporting the Sunni rebels, the large drop in prices seems to have opened a window of opportunity for Russia to ally with Saudi Arabia.
This is not the first time that Russia and Saudi Arabia have sought a close partnership. Even in 2013, The Telegraph had reported an attempt to form a secret deal, which did not go through. Iran has been a trusted ally of Russia for a long time, and if Russia can broker a deal between Iran and Saudi Arabia, it can also push through some sort of secret OPEC deal. Related: Saudis Turn To Capital Markets For $10 Billion Loan
The production freeze to January levels that was bandied about last month carries no significance in concrete terms because Russia, Saudi Arabia and most other nations on board are pumping close to their record highs. Barclays’ commodity research chief Kevin Norrish said it was “vital to note” that there was not much incremental production expected from Russia, Qatar or Venezuela this year anyway. It was the Saudi’s that really mattered, as reported by Forbes.
Though Iran hasn’t committed to a production freeze, since it wants to ramp up production to pre-sanction levels, Russian Energy Minister Aleksander Novak has noted that "Iran has a special situation as the country is at its lowest levels of production. So I think, it might be approached individually, with a separate solution."
With all the major Gulf nations agreeing, Iraq, which is without a credible political leadership, will also likely follow suit if Russia assures them of stronger support against ISIS.
If the above scenario plays out, Russia will emerge as the de facto leader of the major oil producing nations of the world, accounting for almost 73 percent of the global oil supply. Related: It’s Time For Canadian Oil To Re-Shuffle, Re-shape And Rebound
Along with this, Russia has been in the forefront of plans to move away from Petrodollars, and Moscow has formed pacts with various nations to trade oil in local currencies. With this new cartel of ROPEC (Russia and OPEC nations), a move away from petrodollars will become a reality sooner rather than later.
Russia is smart. Vladimir Putin is genius. Moscow senses the opportunity that is almost tangibly floating about in the low crude price environment and appears to be ready to capitalize on it in a way that would reshape the geopolitical landscape exponentially.
Though a solution in Syria is welcome, a large cartel of major oil producing nations of the world with Russia as the head would be a major upset to the current balance of power. With this potential in mind, the mid-march meeting should be very interesting for the global oil patch—well beyond talk of production cuts and supply gluts.
By Rakesh Upadhyay for Oilprice.com
More Top Reads From Oilprice.com:
- Anadarko Slashes 80% Of Onshore Rigs, To Lay Off 95% Of Contractors
- U.S. Has Too Much Oil. So Why Are Imports Rising?
- Demand For Oil Slows As Globalization Reaches Limits
Sadly the religious excuse that is being used at the moment by Middle eastern nations to distract their population from the leaderships' lack of care for their own kind is now self propogating and becoming a truly deep seeded hard reality which is quickly miring much of the world in blood and fear, if not outright hate.
Until that is remedied then I for one hold no qualms with the Russians and in fact am glad that they have once again found some pride- after all without the people, ( and I do mean people for their physical spend was astounding, of Russia the EU would have been created 70 plus years ago and it would have been a whole lot less friendly, ( not denying the effort made by all other western nations and the productive powerhouse of America that provided the materiel and many fine fighting men as well which of course tipped the scales in the west's favour incredibly ).
Go Russia! At the same time please go the west and forge closer ties with them for the better tomorrow we all deserve!
Of course go all nations, of all religious backgrounds, for all we love our children too!
The last thing I'd say is that Russia isn't the hardest player at the table to read- for all we know how much they love chess, and that is at least based on logic.
My prime example is the almost comical to and fro between Europe and Russia- during the European summer Russia is the bad guy but come the European winter Russia isn't the worst guy after all as he provides most of the gas that keeps Europe warm.
Russian "dominance" of the oil market is as temporary now as it was in the 70s. The declining profitability in their oil sector just tees up future production declines, as it does in many of the other improvidently managed OPEC economies.
ROUND #1: The MAJOR reason the USA beat CCCP in the LAST COLD WAR is that we simply OUTSPENT THEM.
ROUND #2: Today we are again in yet another COLD WAR with the NEW CCCP. And when OIL $$ GO UP...i. A $10/barrel increase in Oil $$$/Barrel (08/22/2015 to 10/09/2015 ) brings another $100,900,000 or $101 Million DOLLARS PER DAY into Mother Russia THAT IS ONLY $3B PER MONTH...That is ACTUAL $$$ Russia can now us to OUT SPEND AMERICA...THIS time around.
WE are in a COLD WAR WITH CHINA.
Hello...People don't get it!!! If we immediately go to SOLAR and make the price of Oil go to $5/Barrel THIS ALONE COULD STOP RUSSIA IMMEDIATELY. And the COLD WAR with the NEW CCCP would END.
We would simply need to contend with the NEW CHINA GREAT SAND WALL.
Another Back-to-the-FUTURE MOMENT brought to you by Prof R. . .NOT!
My English is not soo good... but does it mean what I think, an military invasion into OPEC countries by the Russian Armed Forces? As far as Saudi-Arabia? (Far over 1,000 Kilometers with some other countries between, at least one of them, Georgia is extreme anti-Russian, Azerbaijan would not allow a whole Russian Army (over 100,000 men) with their equipment to pass I guess... the only aircraft-carrier in Russia in 2015 went to a 3 year-long modernization. This class was created at the very end of Soviet Union, the carrier commisioned in early 1991 only months before collapse,
the 2nd was not completed and than was sold to China, completed there and is now operational with some more modern systems (radar etc), but since no nuclear-propulsion like US carriers, the 4 engines with 50.000 horsepower each (both same in Russia and China) are real monsters in amount of fuel they need when cruising, not to speak about driving at maximum speed... so Russia even can not thread any country by air(craft carriers) power like the US with their fleet is able to.
only Armenia would because Russia "bought" Armenian friendship by buying a majority in the countries pipeline-network (51% I think) for a good price and leaving 49% in Armenian hands... but Armenia has less population than Berlin (~3,05 million Armenian population in 2015 with a decline of -0.15% per year, Russia also has a decline, it went down to only -0.04% per year but only because of:
Net migration rate: 1.69 migrant(s)/1,000 population (2015 est.)
So no matter how strong and in which condition the Russian Army now is, it will not play any role in an relationship between Saudi-Arabia/OPEC and Russia... they are only talking because especially Russia is suffering very hard at such low oil prices and Saudi Arabia has underestimated the US fracking/oil and gas shale industry...
and of course because of the pressure from Venezuela, United Arab Emirates and Kuwait. Venezuela should first eliminate the reasons why it with the worlds largest oil reserves if you include oil sands, is not able to even stabilize its very low production... its because PDVSA had to give almost all profit it made to the state during the good times and investments in existing fields or new complexes did not happen, only a very very small amount was available to "repair" one thing and in that time 2 other things needed "repair", also corruption played a role...
Venezuela needs a huge investment and could produce 3 times as much like now including the giant oil sands (Canada showed it works, and Venezuela has even a bit lower costs since employees costs are much lower than in Canada and there is a nearby harbour to bring the oil/bitumen on the world market...
China is the 2nd military power and Russia is a strong but more local army with only very limited options in a radius over 1,000 km away from any Russian territory or military base (I think Russia only has/had one in Uzbekistan and bought it only because US was using it before and Russia offered a much better price for the air field and a few barracks and electric-diesel generators there, no real military base, but Russias 2nd aircraft carrier, it just can not move and its range is limited to Afghanistan/Pakistan/Iran and maybe to Kuwait/Iraq if it would be allowed to fly the shorted air distance crossing others territory..