OPEC was founded in 1960 by founding members Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. For a short time, the oil cartel became the dominant force behind world oil prices and a key intermediary of geopolitical power, with its members controlling nearly half of world oil production and more than three-quarters of world oil reserves. As U.S. oil production entered a period of seemingly inexorable decline after its 1970 peak, Washington desire to strengthen energy security and create a stronghold against communist expansion in the Middle East, Saudi Arabia has become a key US ally. OPEC, at the height of its power in the 1970s, flexed its muscles by reducing oil production, causing prices to spiral up, triggering two oil price shocks that triggered global recessions. Since then, OPEC’s strength has steadily deteriorated, accelerating over the past two decades due to the rapid growth of non-OPEC oil production, especially in the US and Brazil.
The US shale oil boom has led to a rapid increase in land production after almost three decades of decline. U.S. crude oil imports from the Middle East have declined, and Congress has lifted a four-decade restriction on U.S. crude oil exports. Even the 2014 plan of the Riyadh to regain market share and destroy the US shale oil industry by opening studs and significant growth output, causing crude oil prices to decline sharply, has failed. In 2018, the USA OVER Saudi Arabia will become the world’s largest oil producer, pumping 10.96 million barrels of oil equivalent daily. Since then, production, led by the shale oil industry, has increased with the collapse of the oil price in March 2020, having a low material impact on the US shale oil industry. The US Energy Information Administration estimates the US 2020 oil production on average, 11.3 million barrels of crude oil per day, which, while decreasing by 7% compared to 2019, is still 29% higher than the 8.8 million barrels produced daily in 2014, during the peak period of the shale oil boom. The EIA expects US oil production to decline by 2% year-on-year in 2021 to 11.1 million barrels per day, which is still 26% higher than in 2014. The resilience of the shale oil industry in The US can be attributed to the improvement of technology and expertise, which, along with the increase, increases operational efficiency has led to a steady decline in unmatched prices. According to the Dallas Federal Reserve, the new shale oil wells have an average equal price 46 to 52 USD per barrel compared around $ 77 a barrel in 2014. There are all indications that the American shale could capture energy markets again in 2021 and could continue to pump crude oil at a furious pace, regardless of lower prices. US foreign policy is also eroding geopolitical power and OPEC’s ability to manipulate oil prices. Sanctions against Iran and Venezuela prevent those oil-rich nations from expanding oil production or strengthening their cartel influence. It also rewards Saudi Arabia by delaying Iran’s economic growth, thus reducing Tehran’s influence in the Middle East and strengthening Riyadh’s authority as OPEC’s main producer. White House petro-diplomacy under President Trump, OPEC highlights its influence and ability to manipulate oil prices. In 2018, when Brent rallied to over $ 70 and flirted with $ 80 a barrel, threatening US economic growth, Trump measured exerting pressure on OPEC to increase production while keeping prices low. Then, in early April 2020, after oil prices plummeted due to the COVID-19 pandemic and the approaching price war between Saudi Arabia and Russia, threatening the survival of the US shale oil industry, Trump intervened again . He contacted Riyadh and threatened withdrawal of US troops, unless Saudi production reduced production to support crude oil prices.
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It is not only the rapid growth of US oil production over the last decade that is causing OPEC’s control over oil prices and geopolitical power. Saudi Arabia’s growing dependence on US support for the war against Iran for control of the Middle East and the leadership of the Muslim world, as well as OPEC, has weakened the cartel’s independence and geopolitical power. Riyadh benefits greatly from Washington’s foreign policy, especially from severe economic and diplomatic sanctions imposed on OPEC members Iran and Venezuela. By denying both countries access to global energy markets, they are unable to grow their oil production, limiting their influence and giving Saudi Arabia a freer hand by establishing a cartel policy. That doesn’t provide any Venezuela not even Iran can thrive on the increased economic wealth that comes from higher oil production, severe pressure on both regimes he bet while supporting the position of Saudi Arabia. A stronger, but somewhat less independent, Saudi Arabia increases the effect of US regional policy, while giving Washington a more reliable mandate to influence regional affairs and maintain control over the vast oil resources in the Middle East. This also erases Moscow’s ability to expand its regional influence through its alliance of convenience with Tehran, which saw the support of President Bashar al-Assad’s dictatorial regime during the bloody Syrian civil war. These developments have given Washington a bigger say in OPEC’s oil production and, ultimately, in prices. This is underlined by the one in Riyadh cutting decision one million barrels a day of Saudi Arabia’s oil production to raise prices and absorb increased Russian production. Not only has Riyadh supported oil prices at a critical time, especially for the US shale, but it indicates the Saudi government is trying to favor the new Biden administration.
For these reasons, President Biden needs to carefully consider whether joining the Joint Comprehensive Action Plan (JCPOA) and removing all US sanctions is the right move, especially with Tehran. uranium enrichment violating the agreement. This is especially the case when considering the recent belligerence and aggression of Iran. Islamic Revolutionary Guard Corps recently confiscated a South Korean oil tanker in the Strait of Hormuz while Tehran is ratcheting up support for the socialist dictatorial regime of Venezuelan President Nicolás Maduro despite the massive humanitarian crisis his government went wild.
By Matthew Smith for Oilprice.com
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