Is Saudi Arabia planning to leave OPEC?


Is Saudi Arabia planning to leave OPEC?

King Abdullah Petroleum Studies and Research Center, a Riyadh-based energy think tank, is studying the potential fallout the dissolution of the Organization of Petroleum Exporting Countries might have on the international oil market, the Wall Street Journal reported, giving rise to speculations in the international community.

But soon Khalid A. Al-Falih, Saudi Arabia’s minister of Energy, Industry and Mineral Resources, said Riyadh has no intention of dissolving OPEC, emphasizing that the organization would continue playing the role of the oil industry’s “central bank”.

Adam Sieminski, KAPSARC president, on his part, said the research is just an attempt to think outside the box, which to a certain extent is influenced by the discussions in the United States. Since US President Donald Trump has consistently criticized OPEC’s oil policies and played down its value in stabilizing oil prices, several researchers were motivated to study the possible scenarios in an OPEC-less world.

Yet the very thought that the Saudi government may have signaled the dissolution of OPEC is enough to focus attention on the organization’s history and future.

The 15-member OPEC commands more than 80 percent of world’s proven oil reserves with the Middle East countries accounting for 65 percent. To adjust or influence global oil prices, OPEC members use combined production contracts.

Strictly speaking, only Saudi Arabia and Iran are capable of swaying prices with their spare capacity. And to safeguard its interests in the Middle East, the US has forged an alliance with Saudi Arabia to divide OPEC and ensure supply of huge volumes of cheap oil to economies including the US and European countries. For instance, under the agreement based on an exchange of oil for security, Saudi Arabia put the US’ interests above the other OPEC members’ and implemented oil policies beneficial to the US.

But a series of geopolitical events in the 21st century, including the Sept 11, 2001, terrorist attacks in the US, global financial crisis in 2008, “Arab Spring” in 2011 and the US shale gas revolution in 2014, put an end to this arrangement and had a great impact on global oil prices.

However, OPEC’s increasingly diminishing ability to balance the oil market has prompted the Trump administration to repeatedly pressure Riyadh to control oil prices, forcing Saudi Arabia to persuade longtime rival Russia to agree to cut its output in order to stabilize oil prices. OPEC’s influence and role are likely to weaken in the future as supplies increasingly diversify.

Saudi Arabia has wielded the OPEC card for several reasons, which also prompted KAPSARC to conduct the research. After all, the think tank was established with aid from Saudi Aramco, Saudi Arabia’s largest petroleum company which is directly supervised by the Saudi Ministry of Energy, Industry and Mineral Resources and Ministry of Foreign Affairs.

OPEC members have many other differences too. They are increasingly uneasy about the developing relationship between Riyadh and Moscow. Yet they are also aware that without OPEC, they would struggle to ensure profitable returns from oil supply.

Also, Iran has made it difficult for Saudi Arabia to check and confront it as both Iraq and Qatar have edged closer with Iran. If the US forces the OPEC members to increase oil output to offset the shortage created by Iran’s exit from the international market, the divergences within OPEC would expand.

As such, by leaving OPEC, Saudi Arabia would be in a better position to cooperate with other countries to deal with Iran.

Saudi Arabia alone cannot decide the fate of OPEC despite being its de-facto leader. It can only retreat from the bloc. If the research reveals that exit would bring more benefits rather than disadvantages to Saudi Arabia and the US supports its decision, Saudi Arabia might not hesitate to withdraw from OPEC, which in turn would significantly reduce OPEC’s influence in the global oil market.

Although it’s too early to predict OPEC’s future, it will certainly have a huge impact on geopolitics in the Middle East and the global oil market. For example, there would be further division in oil-producing countries in the Middle East and energy would be more closely related to geopolitics.

Confronted with declining oil prices, oil producers may increase output competitively in order to offset the revenue loss due to a fall in prices. And the Gulf Cooperation Council could perform some of OPEC’s functions after the dissolution of the organization. But Riyadh could more independently try to improve relations and cooperation with Asian countries, as well as Russia to influence oil prices.
Source: China Daily

Leave a Reply

SSCP   CAS-002   9L0-066   350-050   642-999   220-801   74-678   642-732   400-051   ICGB   c2010-652   70-413   101-400   220-902   350-080   210-260   70-246   1Z0-144   3002   AWS-SYSOPS   70-347   PEGACPBA71V1   220-901   70-534   LX0-104   070-461   HP0-S42   1Z0-061   000-105   70-486   70-177   N10-006   500-260   640-692   70-980   CISM   VCP550   70-532   200-101   000-080   PR000041   2V0-621   70-411   352-001   70-480   70-461   ICBB   000-089   70-410   350-029   1Z0-060   2V0-620   210-065   70-463   70-483   CRISC   MB6-703   1z0-808   220-802   ITILFND   1Z0-804   LX0-103   MB2-704   210-060   101   200-310   640-911   200-120   EX300   300-209   1Z0-803   350-001   400-201   9L0-012   70-488   JN0-102   640-916   70-270   100-101   MB5-705   JK0-022   350-060   300-320   1z0-434   350-018   400-101   350-030   000-106   ADM-201   300-135   300-208   EX200   PMP   NSE4   1Z0-051   c2010-657   C_TFIN52_66   300-115   70-417   9A0-385   70-243   300-075   70-487   NS0-157   MB2-707   70-533   CAP   OG0-093   M70-101   300-070   102-400   JN0-360   SY0-401   000-017   300-206   CCA-500   70-412   2V0-621D   70-178   810-403   70-462   OG0-091   1V0-601   200-355   000-104   700-501   70-346   CISSP   300-101   1Y0-201   200-125  , 200-125  , 100-105  , 100-105  , CISM   NS0-157   350-018  , NS0-157   ICBB  , N10-006 test  , 350-050   70-534   70-178   220-802   102-400   000-106   70-411  , 400-101   100-101  , NS0-157   1Z0-803   200-125  , 210-060   400-201   350-050   C_TFIN52_66  , JN0-102  , 200-355   JN0-360   70-411   350-018  , 70-412   350-030   640-916   000-105   100-105  , 70-270  , 70-462   300-070  , 300-070   642-999   101-400   PR000041   200-101  , 350-030   300-070  , 70-270  , 400-051   200-120   70-178   9L0-012   70-487   LX0-103   100-105  ,