Due to divisions within the organization, OPEC’s power has diminished. Regional power struggles were at the heart of some of these. Divergent opinions regarding the cartel’s strategy and target prices motivated others. (OPEC’s power to raise)
OPEC conferences in the 1980s were typically marked by disagreements between price hawks, typically from member states with large populations and limited budgets, and so-called price doves, who advocated for higher output and lower prices.In the past, Saudi Arabia, the United Arab Emirates (UAE), and Kuwait—the wealthier members of OPEC—have been the hawks, while Iran in the 1980s, Iraq under Saddam Hussein, and Libya—the doves—have been the wealthier members of OPEC who are willing to tolerate lower prices if it helps preserve their dominant position in the oil markets. (OPEC’s power to raise)
Increasing budgets in some wealthy member states have raised their break-even oil price, or the price at which they remain solvent, making cartel politics even more complicated in recent years.
Conflicts have occasionally emerged from disputes among OPEC members. For instance, Iran and Iraq fought an eight-year war that resulted in the deaths of hundreds of thousands of people. Iran accused its Arab neighbors of artificially lowering oil prices to aid Iraq, but neither Iraq nor Iran left OPEC, which remained neutral.
According to energy expert Daniel H. Yergin, Iraq’s invasion of Kuwait in 1990 was OPEC’s worst crisis ever. Yergin writes in his book The Prize that “sovereignty and national survival and not just the price of oil” were at stake for the first time. Prices soared as a result of the invasion, which took four million barrels of oil off the global market.
According to analysts, the quick response highlights a fact about OPEC: Saudi Arabia ranks first among comparable members. It accounts for roughly one third of the group’s crude oil production. Saudi leadership supported the Trump administration’s decision to withdraw from the 2015 agreement on Iran’s nuclear program and reimpose sanctions on Iranian oil as a result. In order to reactivate the nuclear agreement and lift the sanctions, the administration of Joe Biden is in contact with Tehran.
Although economic research generally finds that oil prices would be lower if OPEC did not exist, Saudi Arabia’s disproportionate output has sparked discussion about how much influence the other OPEC members actually have and the cartel’s overall power.
Tensions with the United States of America Since 1973, OPEC has frequently had conflicting relationships with the United States of America. Energy independence has been a goal of every American president since Nixon, though economists continue to disagree about its merits. According to proponents, cutting back on OPEC oil reduces the trade deficit and strengthens the U.S. economy in the face of fluctuations in oil prices. It will, according to some, at the very least allow the United States to divert its attention from the Middle East.
OPEC, on the other hand, continues to be a useful foil. In an effort to motivate Americans to consume less fuel, President Jimmy Carter attempted to raise the specter of OPEC. Trump was more explicit, describing OPEC as a monopoly and requesting that the cartel lower prices. This is a common refrain among presidents, who see lower gasoline prices as a kind of tax cut for American motorists. Additionally, Congress has threatened to allow OPEC and its member states to be sued for antitrust violations. In addition, President Biden has laid the blame on OPEC for not increasing production sufficiently in response to the skyrocketing prices of oil, which have contributed to the unprecedented rate of inflation in the United States. (OPEC’s power to raise)
U.S. scaremongering about OPEC serves a purpose for OPEC members who see the group as more of a political club than an economic cartel: It keeps Western diplomats and policymakers focused on the importance myth of OPEC.
The Obstacles Posed by Alternatives The majority of OPEC members see the rise in oil prices as a temporary boon. However, the same high prices may also encourage importing nations to invest in alternative fuel sources—a trend that is already taking place.
The group appears to have been caught off guard by the shale revolution. Assuming that shale production would no longer be financially viable, OPEC responded to the hydraulic fracturing movement in 2015 by lowering prices. However, American producers now have access to previously trapped oil at a lower cost thanks to new technologies, making the United States the world’s largest oil producer in recent years. As measures to contain the COVID-19 pandemic reduced oil demand in 2020, production decreased, but has since rebounded. In addition, despite Biden’s promise to prohibit new drilling on federal land, his administration has continued to approve permits at an unprecedented rate.
To combat this, OPEC collaborated with Russia and a number of other significant exporters to coordinate production and maintain price stability. They formalized this new OPEC+ coalition in July 2019 despite objections from the United States, who were concerned that the arrangement would increase Moscow’s influence over global oil markets. The alliance has also added new tensions for the cartel’s allies of the United States, who now have to balance competing demands from Washington and Moscow. (OPEC’s power to raise)
Indeed, at the outbreak of the pandemic in 2020, tensions between Saudi Arabia and Russia reached their peak. At a meeting in Vienna at the beginning of March, Saudi Arabia urged OPEC+ members to reduce production. Russia refused because of U.S. sanctions on Rosneft, its largest oil company, and fear of losing market share. By the beginning of April, the OPEC+ nations had tentatively agreed to reduce production by as much as 20 million barrels per day, expressing concern about the harm that rock-bottom oil prices would cause to American industry.
In the long run, the development of electric vehicles that run on renewable energy sources poses a serious threat to OPEC’s existence. According to Jaffe and Morse, investments in the sector have increased as a result of rising prices for fossil fuels and government subsidies for renewable energy sources.
Looking Forward Vast shale oil reserves in the United States have not completely protected American consumers from price swings caused by OPEC. The independent decisions of dozens of private energy companies determine changes in the levels of production in the United States, and it may take customers several months to notice any changes. This indicates that OPEC can gain substantial, if brief, market power to influence prices when market conditions change abruptly.
The plight of U.S. producers was made clear by the price war in 2020 between Saudi Arabia and Russia. A U.S. industry already dealing with the effects of the pandemic was further stressed as the price of oil fell to its lowest point in nearly two decades.
In 2022, Russia’s invasion of Ukraine and the harsh sanctions imposed by the West as a result pushed up global oil prices and brought OPEC’s role back into the spotlight. In March of that year, Biden announced a ban on importing oil from Russia, and the European Union (EU) stated that it would work to lessen its reliance on Russian energy. By that point, international benchmark Brent crude oil prices had reached over $130 per barrel, their highest level since 2008. (OPEC’s power to raise)
As a result, numerous Republican lawmakers and Democrats have called for increased drilling in the United States. However, according to analysts, it will take months for U.S. shale production, which sank during the pandemic-induced price slump, to significantly increase. The recent price increases, according to some experts and politicians, highlight the need for the United States to move away from fossil fuels and toward renewable energy sources. However, this will also take time, and the United States may be forced to turn to OPEC for oil. (OPEC’s power to raise)
The cartel may have trouble remaining cohesive if Riyadh continues to pursue a more assertive foreign policy. This possibility, the rise of shale oil, the growing energy independence of the United States, and global efforts to combat climate change all point to a prolonged period of uncertainty for OPEC and its new partner Russia.
