When I started taking interest in petroleum many years ago, the then-prevalent peak oil theory suggested that the oil age will soon begin to end as major oil exporters like Saudi Arabia reach their peak production in the noughties of the 21st century.
Like others, I was awaiting the validation of this theory given its impact on our lives and the future of humanity on planet Earth as one cannot fathom the development of the global economy without oil, at least not in the near future.
However, years went by, and we discovered that it was quite the opposite: oil demand is on the rise and global production has yet to reach its peak, especially after the US shale revolution, which saw US oil production rise to record levels that surpassed Saudi Arabia and Russia for the first time in decades, turning the US into an oil and oil derivatives exporter.
Whenever a disagreement happens in an OPEC meeting, I hear and read the same predictions, that OPEC and OPEC+, the alliance it made with major non-OPEC oil producers, co-led by Russia, will soon perish. However, OPEC and OPEC+ come out strong every single time no matter how sharp the disputes. This has reinforced my conviction that OPEC+ is far from perishing and will last longer than expected.
OPEC+ was established in 2016, when the tough market conditions at the time forced Russia and other producers to cooperate with OPEC to restabilize the market. Practically, the oil market cannot operate correctly without a leadership, and since leadership is effectively linked to the production volume and impact of each state, it was only natural that Saudi Arabia and Russia lead OPEC+. Ironically, Russia and its oil companies consistently doubted the effectiveness of cooperating with OPEC and had even refused this cooperation many times despite all the calls launched by OPEC to take action whenever the market was destabilized.
Eventually, Russia could not escape OPEC as the US grew more and more powerful on the market thanks to shale oil because Russia could not confront this US growth without OPEC. The political Saudi-Russian rapprochement helped with constant official and commercial bilateral visits over the years that followed the establishment of OPEC+. Saudi Aramco was more open to investing in Russia, and Russian sovereign funds also sought to invest in Saudi Arabia.
Initially, Russia’s vision of this alliance was short-termed. The main objective was to curb oil reserves in oil-producing states to a five-year average.
With time, and even after the realization of this objective, all the parties discovered that this alliance was paramount to market stability, and thus, chose to maintain it. Nonetheless, many obstacles faced OPEC+, not least of which was the Saudi-Russian conflict with the onset of the covid-19 crisis last year when Russia decided to do its own thing and increase production at its whim; thus, sliding out of the deal. However, Saudi Arabia threw its weight behind OPEC+ and proved that it is capable of floating the market with petroleum and taking away a large portion from any country that competes with it in the market. It became clear to all that OPEC+ and the agreements stemming from it are more stable and powerful than OPEC on its own, as the alliance includes major states and many allies to the US and the West, such as Mexico and GCC states.
Recently, a technological and technical disagreement took place between the UAE and OPEC+. I believe this is but an ordinary disagreement that falls in the context of the sovereign right of every state to seek the best deals, but everyone is back to predicting the end of OPEC+ like they predicted the end of OPEC years ago. However, this disagreement will pass just like others did in the past because OPEC+ is built on a solid foundation, which is maintaining oil market stability, and this is what matters most to all states. To quote Saudi Energy Minister Prince Abdulaziz bin Salman, all OPEC+ needs to extend the production cut agreement till post-April 2022 is “Some rationality and some concession.” In all honesty, I never expected OPEC+ to even last till 2022, but now I believe that it will last even longer and will not perish easily as some believe because what’s coming for the oil market will not be any easier than what has gone.
This article was originally published in, and translated from, the pan-Arab daily Asharq al-Awsat.
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