OPEC was founded in 1960 by founding Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. For a short period of time, the petroleum cartel became the dominant force behind world oil prices and a major geo-political power broker, with members controlling nearly half of world oil production and more than three-quarters of global oil reserves. When US oil production entered a period of seemingly inexorable decline after the peak of 1970, Washington desire In order to bolster energy security and create a bulwark against communist expansion into the Middle East, Saudi Arabia saw an important US ally. OPEC at the height of its power, in the 1970s, flexed its muscles by reducing oil production, causing prices to skyrocket and triggering two oil price shocks that triggered global recessions. Since then, OPEC’s power has steadily deteriorated, and that decline has accelerated over the past two decades as a result of rapidly growing non-OPEC oil production, particularly in the US and Brazil.
The US shale oil boom saw mainland production soaring after nearly three decades of decline. US imports of crude oil from the Middle East plummeted and Congress lifted a four-decade restriction on US oil exports. Even Riyadh’s 2014 plan to regain market share and destroy the US shale oil industry by opening the taps and boosting them significantly production, causing crude oil prices to start a sustained decline, failed. In 2018, the US. caught up Saudi Arabia becomes 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 grown, with the collapse in the oil price in March 2020 having little sustained material impact on the US shale oil industry. The US Energy Information Administration estimates the US. Oil production 2020 an average of 11.3 million barrels of crude oil per day, which, although a 7% decline from 2019, is still 29% more than the 8.8 million barrels produced daily in 2014 during the shale oil peak boom. The EIA expects US oil production to decline 2% year over year in 2021 to 11.1 million barrels per day, which is still 26% more than in 2014. The resilience of the US shale oil industry can be attributed to the growth of the US shale oil industry. improving technology and expertise, along with growth through operational efficiency, break-even prices have fallen steadily. According to the Dallas Federal Reserve, new shale oil resources are averaging breakeven price from $ 46 to $ 52 a barrel round $ 77 a barrel in 2014. There is all evidence that US shale could surprise energy markets again in 2021 and continue pumping crude oil at breakneck speed, regardless of softer prices. US foreign policy is also eroding geopolitical power and OPEC’s ability to manipulate oil prices. Sanctions against Iran and Venezuela prevent these petroleum-rich countries from expanding oil production or increasing their influence within the cartel. It also rewards Saudi Arabia by slowing Iran’s economic growth, curtailing Tehran’s influence in the Middle East and strengthening Riyadh’s authority as OPEC’s largest producer. The White House petro-diplomacy under President Trump emphasizes the diminishing influence of OPEC and its ability to manipulate oil prices. In 2018, when the Brent had soared to over $ 70 and flirted at $ 80 a barrel, threatening US economic growth, Trump weighed put pressure on OPEC to boost production and keep prices low. Then in early April 2020, after oil prices collapsed due to the COVID-19 pandemic and the looming price war between Saudi Arabia and Russia, threatening the survival of the US shale oil industry, Trump intervened again. He contacted Riyadh and endangered the withdrawal of US troops unless the Saudis cut production to raise crude oil prices.
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It is not only the rapid growth of US oil production over the past decade that hinders OPEC’s control over oil prices and geopolitical power. Saudi Arabia’s growing reliance on US support for waging its proxy war against Iran for control of the Middle East and the leadership of the Muslim world and OPEC has weakened the cartel’s independence and geopolitical power . Riyadh is benefiting greatly from Washington’s foreign policy, especially the harsh 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 petroleum production, reduce their influence and give Saudi Arabia a freer hand in designing cartel policies. That doesn’t take care of either Venezuela nor, in particular, Iran can thrive from the increased economic wealth that comes from increased oil production, placement severe pressure on both pariah regimes, while strengthening Saudi Arabia’s position. A stronger, but somewhat less independent Saudi Arabia increases the impact of US regional policy and gives Washington a more reliable proxy to influence regional affairs and control the vast reserves of oil in the Middle East. This also hinders Moscow’s ability to expand its regional influence through its convenience alliance with Tehran, which saw both countries support President Bashar al-Assad’s dictatorial regime during the bloody Syrian Civil War. Those developments have given Washington more control over OPEC’s oil production and ultimately prices. This is underscored by Riyadh’s decision to cut one million barrels of Saudi Arabia’s oil production per day to keep prices up and absorb increased Russian production. Riyadh has not only boosted oil prices at a critical time, especially for US shale, but also indicates that the Saudi government is seeking favor with the incoming Biden administration.
For those reasons, President Biden must carefully consider whether re-joining the Joint Comprehensive Plan of Action (JCPOA) and lifting all US sanctions is the right thing to do, especially with Tehran. enrichment of uranium contrary to the deal. This is especially the case when taking into account Iran’s recent fighting spirit and aggression. The Islamic Revolution Guards Corps recently seized a South Korean tanker in the Strait of Hormuz as Tehran is speeding up support for the dictatorial socialist regime of Venezuelan President Nicolás Maduro despite the massive humanitarian crisis his government has been released.
By Matthew Smith for Oilprice.com
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