OPEC turns 60 amid oil splash

The cartel is ever more likely to give in to the US pressure

Back in 1973, the Organisation of Petroleum Exporting Countries (OPEC) almost brought the US economy to collapse by imposing oil embargo as an answer to Washington’s support for Israel during the Yom Kippur War. Now the cartel turns 60 in not much different situation, but is more prone to do what the US actually wants, Reuters reported.

Founded in Baghdad on 14 September 1960 to counter the power of US and British oil companies operating across the globe, OPEC has repeatedly yielded to pressure from Washington to pump more oil since US President Donald Trump took office at the start of 2017. While its most hawkish members, Iran and Venezuela, have been sidelined by US sanctions, its de facto leader, Saudi Arabia, has shown it would rather appease Washington than risk losing US support, current and former OPEC officials say.

While OPEC as a bloc resisted US pressure to lower oil prices for decades, notably in 2011 during the uprising against Libya’s Muammar Gaddafi, its record over the past three years has largely been one of capitulation, these officials claim. 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 hashed out a deal to bring them back up slightly, in an agreement spurred on by Washington's threat to reduce its military backing for Riyadh.

“Trump orders from Saudi Arabia what he needs for the oil price - and is served. So indeed OPEC has changed,” Chakib Khelil, who was Algeria’s oil minister for a decade and OPEC’s president in 2001 and 2008, told Reuters. Both the Saudi Energy Ministry and the White House declined to comment.

Saudi Arabia has been the leading OPEC producer for decades, giving it the biggest sway over policy, and the sidelining of Iran and Venezuela has only increased its influence. Iran’s share of OPEC output has nearly halved to 7.5% since 2010 while Venezuela’s has collapsed to 2.3% from almost 10%, according to Reuters calculations based on OPEC data. Saudi Arabia’s share, meanwhile, has risen 7 percentage points to 35%.

Iran and Venezuela, which founded OPEC along with Iraq, Kuwait and Saudi Arabia, had routinely opposed any moves to bring oil prices down in the face of US pressure. The increased dominance of Saudi Arabia within OPEC has also come at a time of higher US oil and gas production, which has turned the US into the world’s biggest petroleum producer and slashed its dependence on foreign fuel.

Trump has engaged more actively with OPEC than his predecessors, often taking to Twitter to comment on production decisions and oil price moves. Trump has also developed a close relationship with Saudi Arabia’s de facto ruler, Mohammed bin Salman, who relies on the US for weapons and protection against regional rivals such as Iran.

In 2018, as oil prices spiked over $70 a barrel, a level Washington viewed as too high for US consumers, Trump fired a barrage of tweets at the cartel. “Oil prices are too high, OPEC is at it again. Not good!” he tweeted on June 13, 2018, nine days ahead of an OPEC meeting. As OPEC gathered in Austria on June 22, Trump wrote: “Hope OPEC will increase output substantially. Need to keep prices down!” Later that day, OPEC agreed to raise its output by a million barrels a day.

Earlier this year, Trump wanted something new from OPEC: a production cut, to help US oil companies make money. Oil prices had tanked because of a supply glut caused by a price war between Saudi Arabia and Russia at the same time as a collapse in demand due to worldwide coronavirus lockdowns. “Just spoke to my friend MBS (Crown Prince) of Saudi Arabia, who spoke with President Putin of Russia, & I expect & hope that they will be cutting back approximately 10 Million Barrels, and maybe substantially more which, if it happens, will be GREAT for the oil & gas industry!” Trump tweeted on 2 April. On 12 April, OPEC+ agreed to a record cut in production equivalent to a 10th of global output.

Asked about the ultimatum at the time, Trump said: “I didn’t have to tell him.” He said he had spoken to MbS by phone and they were able to reach a deal on production cuts. Saudi Arabia’s government media office did not respond to a request for comment on the April report. “In sum, OPEC does not make decisions anymore on what is best for its members economically, as it is supposed to according to its statutes,” Algeria’s Khelil said.

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