The Organization of the Petroleum Exporting Countries says it’s trying not to mix politics with oil. OPEC Secretary General Mohammad Barkindo should be applauded for his courage in saying that at a meeting in Iran—at present, the lion’s den of oil producers.
Because nothing could be further from the truth.
Established in 1960 to coordinate oil policies of its member states and also provide them with technical and economic aid, OPEC has deviated quite a way from some of the noblest objectives of its founding.
At its core, it does indeed remain a group that aims to manage global oil supplies and prices to avoid fluctuations that could affect the economies of—primarily—the commodity’s producers, and—secondarily—their customers. And it still has its headquarters in Vienna, where it rebased after initially spending its first five years in Geneva.
Only One Member Making All The Rules In OPEC: Saudi Arabia
Yet, it cannot be denied that, of its five founding and nine regular members—ten until Qatar left in a huff last year—just one gets to make virtually all the rules in the organization: Saudi Arabia.
The only other member with any sort of muscle within OPEC happens to be the closest Saudi ally: the United Arab Emirates.
It is no coincidence, therefore, that most of the group’s decisions have a heavy Saudi bias, even as OPEC tries hard to project itself as a consensus-based organization—with members who often have little choice but to fall in line, for the sake of a commodity that’s so dear to them all. Oil, as the fluid that literally moves the world, and Riyadh, as its biggest exporter, has reinforced the Saudis’ vice grip on both the commodity and the cartel.
That’s why, six decades on, and after epic dramas like the 1970s Arab Oil Embargo and back-to-back crude price crashes in the past five years, OPEC is still standing. It is the proverbial multi-incarnate cat of commodity pacts that continues to outlive critics’ calls for its death, even as cartels of all other forms have vanished.
Saudi Enemies Like Qatar, Iran Have Fallen To Wayside Within OPEC
Conversely though, as the Saudis’ global power grew, their arch-rivals found themselves increasingly isolated from top-level power brokering within OPEC, resulting in the exit of Qatar, and the now embattled position of Iran, which faces a U.S. embargo on its oil while the Saudis watch idly—or with joy, some would say. The Saudis also aren’t terribly worried about the fate of another major OPEC member—Venezuela, which is also bogged down by U.S. sanctions.
Back to Barkindo, as OPEC Secretary-General, he is a toothless tiger, not unlike the U.N. Secretary-General. He has little autonomy in the organization, making all the more amusing his reminder to OPEC members during a visit to Tehran this week that they should leave their “passports (at) home when coming to this organization”.
Putin May Have Greater Clout Within OPEC Than Sec-Gen Barkindo
If anything, Russian President Vladimir Putin, who has not attended a single meeting of the oil cartel, probably has greater clout in the organization than Barkindo, the former head of Nigeria’s national oil company.
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As the man who practically saved OPEC from collapse last year by agreeing to start anew a 2016 production cutting pact between their countries, Putin has become a godfather of sorts to Saudi Arabia’s ambitious young Crown Prince Mohammed bin Salman. The two men control OPEC through their proxies, energy ministers Alexander Novak and Khalid al-Falih, who in turn are fighting to keep this year’s 40% rally in crude alive through their joint stewardship of 25% of the world’s output.
On the other side of the ring is U.S. President Donald Trump, who, weighing in with a daily U.S. production of 12.3 million barrels, is a deserving world contender too in shaking up crude prices. In an earlier round, Trump stopped Russia from nearly becoming an official member of OPEC.
For now though, the Saudis seem to have the best deal of the three, with the Russians on their side, Trump unwittingly keeping oil at around $70 per barrel for them through his embargos and their favorite enemy Iran getting stiffed. To analysts covering OPEC, the relationship between the Saudis and Iranians must be an enigma, given their facade as brothers bonded for the common good of a vital commodity, while being ready to drive the stake into each other at the first opportunity.
Further dividing an already fractured OPEC, Putin is backing incumbent Venezuelan President Nicholas Maduro, whom Trump is trying to dislodge through his support for challenger Juan Guaido. Russia is also a long-time ally of Iran, making its reticence in the indirect Saudi suppression of Iran all the more surprising.
Iran To 'Make It As Uncomfortable As Possible' For The Saudis
Earlier this week, Iran’s Oil Minister Bijan Zangeneh said:
“Using oil as a weapon against two founding members of OPEC (Iran and Venezuela) will transform the unity in this organization into division, and spell the demise and collapse of OPEC.”
“They have to accept responsibility for such thing.”
He didn’t specify who was targeting his remarks at, though it was obvious that he was blasting both the Americans and the Saudis.
Despite all these, Iran has maintained that it will not follow Qatar’s lead in leaving OPEC.
John Kilduff, founding partner at New York energy hedge fund Again Capital, also thought it made sense for Tehran to stay.
Added Kilduff:
“I think they want to keep their presence at the table, have their voice heard and make it as uncomfortable as they can for Saudi Arabia.”
Which brings us to the contention earlier this week by Bubba Trading Founder and Chief Strategist Todd Horwitz, who described OPEC as “nothing more than a phony organization”.
Horwitz said that, with the U.S. increasing its crude production, OPEC had “nothing to do anymore,” and “can no longer hold over the Americans to the threat of holding back (its) oil”.