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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