Saudi Arabia and the United Arab Emirates have been repeatedly urged by Western leaders to increase oil production to counter rising prices. So far, all requests from Riyadh, Abu Dhabi and other OPEC members have been flatly rejected. Both Saudi Arabia and the UAE have made it clear that they intend to uphold the OPEC+ production deal, a deal that includes Russia’s involvement. Saudi Arabia’s Energy Minister Abdullah bin Salman and his Abu Dhabi counterpart Al Mazrouei have consistently emphasized their focus on global energy market stability, regardless of geopolitical factors. As Abdullah bin Salman reiterated, OPEC has faced major crises before, including wars between member countries (Iran-Iraq) and even sanctions (Iran), without dissolving.
Officially, the reason OPEC members won’t increase production is because they believe oil and gas markets are still grappling with the fallout from COVID-19. OPEC+, originally formed to counter a major global oil glut in 2020, is now emerging as a major geopolitical power. The cartel’s power has forced Western and Asian oil consumers to become increasingly assertive in their demands on the group. With the ongoing Russian invasion of Ukraine and the growing threat of Moscow’s militarization of energy, OPEC’s oil market actions are increasingly viewed as political. Try as they may, Riyadh, Abu Dhabi and other OPEC members will struggle to change OECD countries’ minds on this front. OPEC’s recent decision to remove the International Energy Agency’s (IEA) oil market data and reports from its official list is seen by OECD countries as further evidence of their political leanings. While OPEC officially rejects any allegations of political interference in its decisions, OPEC’s strategies are clearly linked to its members’ geopolitical views. The growing rift between OPEC and the West is not based solely on oil and gas demand or disagreements over the global energy transition. The more fundamental rift stems from a lack of trust between Western powers and the Arab world. While President Biden enjoys strong support in Europe for his stance on Putin’s invasion of Ukraine, his relationship with the Arab world does not. OPEC’s strategy is currently being pushed by Riyadh and Abu Dhabi, both of which are struggling to come to terms with what they see as a return to Obama-era politics. The region is still fresh in the memory of the aftermath of the Arab Spring, civil wars in Syria and Libya, and the ousting of Egyptian President Hosni Mubarak. The fact that US President Biden is still waiting to meet Saudi Crown Prince Mohammed bin Salman or has reservations about Crown Prince Mohammed bin Zayed is not taken lightly. The current shift eastward of alliances of the Arab world, including Egypt, Libya and even Algeria, building or enhancing strong ties with China and Russia is a clear trend. If the West is serious about influencing OPEC production, it must first restore the confidence of its allies in the region.
Related: OPEC sees smaller oil supply surplus for Q1 2022
Perhaps the most important 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 its European counterparts are continuing their efforts to secure a new Iranian JCPOA deal. A potential JCPOA deal could potentially destabilize oil and gas markets while angering key OPEC nations and Israel. As the US and Europe doggedly seek a new deal with Iran in hopes of securing additional oil supplies, they should be wary of the potential costs of such a deal. While OPEC claims not to be political, the West’s relationship with the Arab states will no doubt affect its ability to argue with the cartel.
Attempts by Biden and other nations to tap into strategic oil reserves have proven ineffective in bringing oil prices down. Mutual trust is the only solution here. While OPEC executives may claim that their assessments are based on market fundamentals, the reality is that oil and gas markets are always political. Washington and Brussels must understand that a political solution is needed. When it comes to the oil and gas markets, OPEC currently has all the cards in hand and the West has to face up to this fact.
By Cyril Widdershoven for Oilprice.com
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