After the meeting, OPEC decided to cut 800,000 b/d from its
output while non-OPEC participating countries in the "Declaration of
Cooperation" reached agreement on cutting 400,000 b/d from their
production – a total 1.2 mb/d – in a bid to shore up oil prices.
Nonetheless, the output cut decision failed to prevent the
emergence of discrepancies between member states. OPEC developments have given
rise to the following question: "Will OPEC continue to remain an
influential oil body or will it be entangled in a serious crisis and go to the
brink of collapse?
**Challenges
Over the past two years, OPEC has seen numerous
developments, some of which have been internal and some others imposed from
outside or at last accepted by some member states. Some of major issues OPEC
has been grappling with are as follows:
1. US Continued Political Meddling: Under
President Donald Trump, the United States has more than ever meddled evidently
with OPEC affairs. The Trump administration is seeking to push ahead with its
objectives owing to its influence on Saudi Arabia. Over the past two years,
President Trump has not ceased to demand that OPEC raise its output so that oil
prices would fall. In addition to the objectives Trump is pursuing in the US
economy, restricting Iran's role in global markets and ratcheting up the pressure
on Tehran has been one of the most important US intentions behind its
interference with OPEC affairs. To that effect, the Trump administration has
constantly called on Saudi Arabia and some other OPEC member states to raise
their output so that the oil market would not face a big shock as a result of
the US pressure for limiting Iran's oil exports.
2. Politicization
by Member States: A pillar of OPEC has been a requirement for member states to
economically look at the issue of energy. But some members like Saudi Arabia
have in recent years adopted a political approach vis-à-vis energy and have
been trying to use their capacities against other nations. Saudi Arabia's
violation of OPEC output cut deal with the political motivation to fill Iran's
void is a politicized move within OPEC. Undoubtedly, the continuation of
politically motivated measures and marginalizing economy-oriented analyses
would strike an irreparable blow at OPEC and turn this energy body into a venue
for political conflicts.
3. Russia's
Greater Role in OPEC Decisions: Ever since the issue of OPEC production freeze
and output decline was raised, Russia emerged as a major non-OPEC partner.
Moscow has undeniably been instrumental in the conclusion of OPEC-non-OPEC deal
and the success of the production freeze deal. Russia has since won clout with
OPEC members. Although cooperation between Moscow and OPEC has proven fruitful,
Russia is a non-OPEC state and its growing influence may pose a challenge to
the internal mechanisms of the largest oil producer group.
4. Qatar Exit:
When new countries join OPEC the entire organization will be strengthened, but
when a member quits the organization will become weaker. Qatar was a minor
member state whose exit would not inflict any serious harm on the organization;
however, this withdrawal which resulted from political conflicts will have
major consequences. Needless to say, Qatar pulled out of OPEC due to its
political disputes with Saudi Arabia, and its exist is likely to widen the gap
between OPEC member states in addition to between Arab states. Therefore,
Qatar's exit from OPEC would not be good news and may bring changes to
political groupings within OPEC. Furthermore, the exit of a country from OPEC
would have also psychological impacts because it may prove the inefficacy of
the organization and persuade other members to follow suit.
**OPEC Outlook
Over recent years, convergence or divergence among OPEC
members has been the major factor in the success or failure of the
organization. Therefore, the factor that could help clarify OPEC developments
in the future is cohesion within the body and approaches pursued by member
states. In case OPEC members decide to look at energy market developments
politically, the organization will be faced with serious challenges because
political differences would hinder any reasonable decision-making based on
economic criteria and that could pose a challenge to OPEC decision-making under
sensitive circumstances. Furthermore, in case the US continues its political
differences within OPEC internal affairs and pushes its own objectives and
interests within OPEC via its ally Saudi Arabia, more divergence is likely to
transpire the organization.
Meantime, OPEC has to shed light on its mode of interaction
with non-OPEC oil producers. Cooperation with countries like Russia is very
helpful for controlling oil prices in the world markets, but such interaction
does not rely on any structured framework and such agreement is likely to be
killed under the impact of a sudden event. Therefore, in order to systematize
its relations with other oil producers, OPEC is required to envisage a
well-structured mechanism.
OPEC is also required to preserve its attractiveness for
member states. If for whatsoever reason the interests of member states are not
pursued, they will no longer be willing to remain member. Collective
decision-making, avoiding politically-motivated conflicts, respecting the
interests and conditions of fellow members and averting any meddling by
non-members in the decisions are among issues which could persuade member
states to stay within OPEC.
Undoubtedly, if such issues are not taken into
consideration, member states will quit this big organization one after another
because if the interests of a country are ignored or all OPEC decisions turn
out to be unilateral and in favor of certain members others will have no
motivation to remain in the Organization.
By Shuaib Bahman
Courtesy of Iran Petroleum