OPEC+ is a group of 23 oil-producing countries, including Russia, that coordinates oil policy that affects market pricing.
Western countries have imposed sanctions on Moscow’s energy exports in response to its invasion of Ukraine. This could see Russia’s offshore oil exports drop to a third of their pre-invasion levels, Energy Intelligence, an energy information company, has calculated. The move could potentially drive the price of a barrel even higher as the West battles high inflation.
Brent fell 13% after Otaiba’s comments, the biggest one-day drop in nearly two years.
Then, at 2 am local time, UAE Energy Minister Suheil al-Mazroui took to Twitter to clarify the situation. “The UAE is committed to the OPEC+ agreement and the existing monthly production adjustment mechanism,” he said. Oil prices have recovered.
Fluctuations show how volatile the market is, said Amena Bakr, OPEC’s chief correspondent at Energy Intelligence. “Any signal can move the price in any direction,” she said. “If, as the ambassador mentioned, the UAE is in favor of increasing production, perhaps this will be discussed at the next meeting on March 31.”
We asked Bakr how likely this is to happen and whether it will affect the price of oil.
Why are oil prices rising and what can OPEC+ do about it?
At the moment, OPEC+ is playing a fundamental card. They say there is no actual shortage of supply in the market. We are seeing oil prices rise to more than $130. [per barrel], all against the background of the war between Russia and Ukraine. So it has to do with geopolitical tensions that the group can’t control at all.
Do you believe them?
To some extent, yes, because this is a huge geopolitical premium. Before the war [that premium] was already high. Now I would say there is a premium of over $30. [per barrel]. So I think there’s a huge part of this equation that OPEC+ can’t control. But at the same time, it is very, very important, especially for Saudi Arabia, to keep Russia united with OPEC+, and they do not want to pursue policies that will force Russia to leave. They see this organization as the only way to manage the market in the future.
They want to stay united until they figure out how big the Russian export deficit is. And then they can act on that.
How much spare production capacity does OPEC+ have?
[Spare] capacities within the group are now owned by two countries: Saudi Arabia and the UAE.
Saudi Arabia has free capacity of about 2 million barrels per day. The UAE has sustainable spare capacity of 600,000 to 700,000 barrels per day.
And they say that if we use spare capacity, prices will rise even more. So it’s best not to get involved and let things calm down before taking any action.
If they use up spare capacity, how will this affect the market? Can they replace Russian oil?
Russia [pre-war] exports were close to 4.8 million or 5 million barrels per day. No one can replace it or come close to it. And from past experience, when OPEC increases production at a time of great volatility and uncertainty, prices tend to rise. This is how the market reacts.
Even with a symbolic gesture showing that they are politically affiliated with one party and not another, this will not have the impact on the market that people imagine. When the International Energy Agency released 60 million barrels [on March 1], oil prices jumped. This causes panic in the market. This is not rational.
So, if the Gulf states decide to boost production, will that mean the end of OPEC+?
Right now, yes. I would say that there is a very high probability that Russia will leave. But you will also get other members. If you look at the list of countries that voted at the UN General Assembly [to condemn Russia’s invasion] there are a number of OPEC+ countries that have abstained, which means that they are either neutral or on the side of Russia. So you have all these countries that will object to this. It’s not just Russia.
Now the agreement is that they operate as a group of 23 people. If you ask me if they will take unilateral action, I will say categorically no, because they know that this can lead to a division of the group.
What do you think the US will need to convince the Gulf states to increase production?
So far, US officials have not put any political pressure on the Gulf states to stop selling weapons to them. The Americans did not play this card because, to some extent, they are buying into history with spare capacities. They also don’t want to aggravate an already very strained relationship.
What is the ideal price per barrel from the point of view of the Gulf countries?
Analysts may misinterpret triple-digit prices by saying that the Gulf states are indeed happy, but that is not the case at all. They didn’t want prices to reach that level. They know it’s unsustainable and bad for demand. But their hands are tied – they can’t do anything about it. And the root cause is not in OPEC, but in the war.
The transcript has been edited for greater length and clarity.
Other Top Middle East Stories
EU says Iran nuclear deal talks on hold
Iran and world powers will suspend talks to restart the 2015 nuclear deal due to “external factors,” the European Union’s foreign policy chief said Friday after last-minute Russian demands threatened to derail the largely completed talks.
- Background: Tehran on Thursday suggested that there were new obstacles to reopening the deal. On Saturday, Russia unexpectedly demanded assurances that its trade with Iran would not be affected by sanctions imposed on Moscow over its invasion of Ukraine.
- Why it’s important: The pause comes after negotiators said last week that talks were nearing completion as the price of oil surged to an eight-year high amid Russia’s war with Ukraine. The release of Iranian-sanctioned oil to the market could curb growth.
Saudi Arabia says it helped save two American women from Yemen
Two American women have been released from Yemen and evacuated to Riyadh, the Saudi capital, a Saudi state agency said Friday. They were “liberated from captivity in the Houthi-controlled capital of Yemen,” the report said, adding that the operation was carried out with US assistance.
- Background: The Iranian-backed Houthis, claiming to be fighting a corrupt system, toppled Yemen’s internationally recognized government in 2014, took over Sana’a and now control much of the deeply impoverished country.
- Why it’s important: The operation comes amid escalating Houthi attacks on coalition members in Saudi Arabia and the UAE, prompting Gulf states to turn to America for more help to counter the treats.
Erdogan asks Biden to lift ‘unfair’ sanctions on Turkish defense industry
Turkish President Tayyip Erdogan told US President Joe Biden in a phone call on Thursday that it was long overdue to lift all “unfair” sanctions on Turkey’s defense industry. He also said that Turkey expects its request for the purchase of 40 new F-16 fighter jets to be completed as soon as possible.
- Background: Ankara initially ordered more than 100 Lockheed Martin-built F-35s, but the U.S. removed Turkey from the program in 2019 after it purchased Russian S-400 missile defense systems.
- Why it matters: A long-standing partnership between NATO allies, the US and Turkey, has experienced unprecedented upheaval in recent years due to disagreements over Syria policy, Ankara’s closer ties with Moscow, US accusations against a state-owned Turkish bank, and erosion of rights and freedoms in Turkey.
What to watch
Turkish Foreign Minister Mevlut Cavusoglu said on Thursday that Russian President Vladimir Putin has no objection to direct talks with Ukrainian President Volodymyr Zelensky “in principle” and told the Turkish President this.
CNN’s Becky Anderson asked Turkish presidential spokesman Ibrahim Kalin if Ankara would mediate between the warring parties.
What’s in trend
Regional: #Benzema
The football-mad Middle East is looking forward to French striker Karim Benzema’s Champions League performance on Wednesday night. The Algerian footballer scored a hat-trick against the Qatari side Paris Saint-Germain, leading his Real Madrid team to the quarterfinals.
Kuwait: #Crime_in_Doha
The shocking murder of a 67-year-old woman in the capital of Kuwait shocked the country. Al-Qabas reported that police found the woman’s two daughters “in a state of panic” at the crime scene and “the severed head of their mother in a plastic bag on the kitchen floor.”
Saudi Arabia: #Go_to_government_dentists
Saudi residents have taken to Twitter to urge people to avoid private dental clinics in favor of government agencies in support of unemployed dentists in the kingdom. Some asked the Minister of Health to intervene and find work for dentists.
Some hashtags are translated into English.