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OPEC formally surrounds Russia, Other non-members Extended "OPEC +": NPR



A saudi worker adjusts the flags of the participating countries before a meeting with energy minister of OPEC and its allies in Jeddah, Saudi Arabia, on May 1

9. OPEC + countries met again in Vienna on Monday and Tuesday and agreed to formalize their relationship in a "Charter of Cooperation."

Amr Nabil / AP


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Amr Nabil / AP

A saudi worker adjusts the flags of the participating countries before a meeting with the energy minister of OPEC and its allies in Jeddah, Saudi Arabia, on May 19. OPEC + countries met again in Vienna on Monday and Tuesday and agreed to formalize their relationship in a "Charter of Cooperation."

Amr Nabil / AP

OPEC used to change world oil markets with a single announcement. Today, the Saudi organization needs help from some key partners – most importantly Russia – to exercise this type of influence.

The extended alliance, which also includes Kazakhstan, Mexico and other nations, is called "OPEC +." And on Monday and Tuesday, OPEC + has made its unofficial expansion a little more official.

Member and non-member states agree on a cooperation agreement to formalize their relationship pending approval by some governments.

Khalid Al-Falih, the Saudi oil minister, called the movement "historic".

The charter "has created one of history's strongest producer partnerships, spanning the world from east to west," he said Tuesday. "Our goals related to market stability are now matched with the horsepower needed to deliver them."

For many decades, OPEC had this horsepower all on its own: its members controlled a majority of the world's raw supplies.

But the balance of power in the global oil market has changed. A technological revolution unlocked large quantities previously difficult to access crude oil. The United States unexpectedly became the world's No. 1 oil producer and a significant exporter. OPEC found itself controlling less than half of the world's crude oil, and then oil prices fell.

Then Saudi Arabia said to a country that only a few years ago had never co-operated with OPEC cuts and was considered by important OPEC members as an oil company instead of ally : Russia. After the United States and Saudi Arabia, Russia is the world's third largest oil producer.

"There is no doubt that OPEC's need to reach out to other major manufacturers such as Russia was a direct result of losing their power and influence over the oil market due to the increase in US production and US exports," Amy says. Myers Jaffe, Director of the Energy Security and Climate Change Program of the Foreign Relations Council. "Russia and OPEC decided that they had to form a partnership or they would lose their influence altogether."

Anchored by Moscow and other cooperating non-members, OPEC + again controls most of the world's crude oil supply. At the end of 2016, the Group agreed on production cuts that were credited by helping to stabilize oil prices following their two-year slide. They have been expanded several times since then.

Building this partnership has not been easy. Iran, a founder of OPEC, has always been cautious about the power of the regional rival Saudi Arabia in the group, and the new OPEC + event, which revolves around the Riyadh and Moscow partnership, gives even greater authority to Saudis.

Meanwhile, Iran also has reason to be concerned that the Saudi Russia partnership could threaten the existing strategic military alliances between Iran and Russia, Jaffe explains.

"Iran is quite isolated," she says. "If … Russia feels it is an advantage for itself to have a tight relationship with Saudi Arabia, who is going to help Iran?"

As a result, while Iran has accepted the OPEC + production cuts, it has spoken out against the formalization of the extended coalition, that is, it accepted the functional reality of the partnership, but protested against putting it down in writing. In front of the OPEC meeting on Monday, Iran promised to veto the plans for the Cooperation Act.

Oil director Bijan Zangeneh went so far as to say that "OPEC can die" as a result of the dominance of Saudi Arabia and Russia.

But after Monday's marathon negotiations, Iran was persuaded to write down the draft charter, which was approved by the participating third countries on Tuesday.

OPEC + members welcomed the Charter as a tool to strengthen the producer's influence over the oil market.

However, Jaffe notes that OPEC +, even strengthened by the expansion, does not have the ability to move the price of oil as significantly as before. Many OPEC members are struggling with involuntary production slump – from Venezuela's breakdown to US sanctions against Iran. Meanwhile, the United States and other non-OPEC manufacturers can quickly increase production, thanks to new drilling technology.

And if OPEC pushes itself to succeed in pushing prices up considerably, Jaffe says it can come back from the oil producer's point of view by pushing the world to reduce its demand for oil more quickly.

"If oil prices go up today … more and more people would be inclined to buy an electric car," she says. "There are all sorts of features today with new technology that actually makes it very dangerous for OPEC's long-term interest to really stick around the price of oil."


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