Decolonisation 2.0. OPEC is once again going to be divided. What do the UAE and Ukraine's aspirations have in common?
And why the struggle for the right to vote in the fuel market leads to tectonic shifts in big politics
russia's war against Ukraine has shaken the world. Now more and more countries are competing for power, subjectivity, and the right to determine their own policies. This trend has not escaped the Organisation of the Petroleum Exporting Countries (OPEC), where competition among the largest Arab economies, which until recently have been close friends, between Saudi Arabia and the United Arab Emirates, has intensified. The issue of changes in the structure of OPEC, the cartel that dictates the terms of oil supplies to Western economies and, through fuel prices, can influence the political situation in developed countries where voters are sensitive to energy costs, has once again been put on the agenda. And these are the same countries that are supporting Kyiv to defeat russia.
Mind has investigated how serious the risk of radical changes in the oil market is and how they can affect the policy of Western partners regarding the course of the war in Ukraine.
What's going on in OPEC? Last Friday, The Wall Street Journal, corporate America’s main outlet, spread the news that the disagreements between Saudi Arabia and the UAE, the US's partners in security in the Middle East, are growing and the management of these countries is increasingly despising each other. It has got to the point where the UAE is debating withdrawing from OPEC. If it becomes a reality, the cartel's influence on the global oil market could be undermined.
The "cooling" of relations between the two countries also affects the external activity of their leaders. For example, when the Middle East leaders' summit was held in Abu Dhabi in January, the crown prince and de facto leader of Saudi Arabia, Mohammed bin Salman, was not present. A month earlier, UAE President Sheikh Mohammed bin Zayed skipped a high-profile China-Arab Summit in Riyadh.
"Still formally allies, Saudi Arabia and the U.A.E. have diverged on several fronts, competing for foreign investment and influence in global oil markets and clashing on the direction of the Yemen war. The disagreements once unfolded behind closed doors but are increasingly spilling out into the open, threatening to reorder alliances in the energy-rich Persian Gulf at a time when Iran is trying to exert more sway across the region and russia’s war in Ukraine has raised crude prices and roiled OPEC decision-making," the WSJ notes.
The conflict, according to the newspaper, is aggravated by the fact that the UAE, as part of the Saudi-led OPEC, is obliged to pump much less oil than it is capable of, and therefore loses revenue. However, Riyadh refuses to increase quotas.
How threatening is the situation? The claim about the UAE's "internal debate" on a possible withdrawal from OPEC, spread by the WSJ with reference to unnamed sources, was denied by anonymous Reuters interlocutors the same day: "The reports are far from the truth."
Still, there is no smoke without fire. Since 2020 and until recently, there have been at least five reports in the leading media about conflicts between the UAE and the Saudis that threatened OPEC's stability.
Saudi Arabia itself was thinking about its own future without the cartel in 2018. The kingdom was studying the possible consequences of the collapse of the group of oil-producing countries, among which it is the leader.
The study was conducted by KAPSARC, the country's main state-funded think tank. It coincided with the pressure on the Saudi government from Washington, when President Donald Trump accused OPEC of pushing up oil prices. And also from investors, who distanced themselves from Riyadh after the brutal murder of US-based Saudi journalist Jamal Khashoggi in Istanbul.
As Adam Sieminski, the head of KAPSARC, stated at the time, the study hadn’t been triggered by Trump’s statements, but was aimed at providing recommendations "to offer a defence of the cartel and the Saudi role in it."
How has OPEC evolved? The Organisation of the Petroleum Exporting Countries emerged as a result of the desire of oil-producing countries to achieve independence in managing their own resources after their colonisation by Western businesses.
Back in 1928, by a secret agreement in the Scottish town of Achnacarry, the oil market was divided among the seven largest oil companies, which created an international cartel. The so-called "Seven Sisters" are: Anglo-Persian Oil Company (later transformed into British Petroleum, BP), Gulf Oil (no longer exists), Royal Dutch Shell (now called Shell), Standard Oil of California (Socal, now Chevron), Texaco (part of Chevron), Standard Oil of New Jersey (Esso, now ExxonMobil), Standard Oil of New York (Mobil Oil, which was absorbed by ExxonMobil).
These companies were granted concessions in oil-rich countries and controlled the distribution of oil revenues generated by the sale of oil to developed countries.
The market changed in September 1960, when representatives of Saudi Arabia, Venezuela, Kuwait, Iraq, and Iran formed OPEC to "coordinate and unify oil policies and determine the best ways to protect their interests, individually and collectively". Later, other countries joined the aforementioned "Founding Members", some of them suspended their membership (Indonesia in 2016, Ecuador in 1992, and Gabon in 1995) and eventually returned to the cartel. Currently, OPEC has 13 active members.
In 1965, the OPEC Secretariat, a permanent executive body, moved from Geneva, where it had been located since 1961, to Vienna. It still operates as the headquarters in the Austrian capital today.
What is the role of OPEC now, and why do not all agree with it? OPEC countries insist that the organisation is an important global economic institution – a forum through which major producers can measure oil production to keep prices from rising or falling too much. Critics accuse OPEC of manipulating prices and putting pressure on large consumers such as the United States.
U.S. lawmakers have repeatedly tried to strip OPEC of its market power by pushing through rules that would effectively declare the organisation an illegal cartel. In particular, last year, Joe Biden's administration consulted with the US Congress on additional tools and authorities to reduce OPEC's control over energy prices and on a potential NOPEC law – No Oil Producing and Exporting Cartels.
This acute situation emerged after OPEC, together with the OPEC+ countries, dominated by russia, agreed to cut oil production last fall. "When the whole world is suffering from rising energy prices, what OPEC and russia are doing looks foolish and reckless," said U.S. Treasury Secretary Janet Yellen. Democratic senators then proposed to stop the sale of $650 billion worth of arms to Saudi Arabia. However, no radical actions were taken, and Ukraine's Western partners were actually forced to obey the coordinated decision of Riyadh and moscow.
What does Saudi Arabia want? Recently, the country has focused on strengthening its role in the international arena and in the Persian Gulf region. Through humanitarian aid and participation in the exchange of prisoners, the kingdom is influencing the course of the war in Ukraine waged by russia.
Saudi delegation during a visit to Kyiv, February 26, 2023
At the same time, Riyadh is considering tax benefits for multinational corporations that open headquarters in the Kingdom. "The programme underscored the growing competition with the UAE, which for years served as a regional hub for multinationals with its laissez-faire approach to business, socially liberal lifestyle and hub airports," the Financial Times wrote in a March 4 publication.
What is the reaction of Western countries to this? The West is also playing its own game and does not intend to remain dependent on the world's major oil producers and exporters. To reduce fossil fuel consumption, the US and the EU have relied on renewable energy sources and industrial decarbonisation. Political efforts are also intensifying. In particular, the International Energy Agency, created under the Organisation for Economic Cooperation and Development, which brings together mainly oil-importing consumers, is increasing its activity in the market.
What does this mean for Ukraine? The problem of the global energy crisis and the dependence of economic development on fossil fuels has not yet been resolved.
U.S. lawmakers have repeatedly tried to strip OPEC of its market power by pushing through rules that would effectively declare the organisation an illegal cartel. In particular, last year, Joe Biden's administration consulted with the US Congress on additional tools and authorities to reduce OPEC's control over energy prices and on a potential NOPEC law – No Oil Producing and Exporting Cartels.
Gas United. Svitlana Dolinchuk's original Telegram channel:
- About the real gas business, based on common sense.
- How energy resources are traded in Ukraine and the world during the war.
- Facts, trends, comments.
If you have read this article to the end, we hope that means it was useful for you.
We work to ensure that our journalistic and analytical work is of high quality, and we strive to perform it as competently as possible. This also requires financial independence. Support us for only UAH 196 per month.
Become a Mind subscriber for just USD 5 per month and support the development of independent business journalism!
You can unsubscribe at any time in your LIQPAY account or by sending us an email: [email protected]
