The Asianist

Balanced and fact-based analysis of Asian affairs

Posts Tagged ‘OPEC oil price

Understanding OPEC’s Recent Troubles

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I’ve written a briefing for World Politics Review trying to make sense of what happened at the meeting of the Organization of Petroleum Exporting Countries (OPEC) earlier this month, which ended in a stalemate and was what Saudi Oil Minister Ali al-Naimi called one of the worst meetings he had ever attended. The article is by subscription, so I will just briefly summarize the key arguments I make in the piece.

In it, I argue that OPEC’s failure to agree on raising production output despite rocketing oil prices and worries about a double-dip recession is due to an interaction of three factors: one old and two new. The first is the usual divide among governments of oil producing states: with Iran and Venezuela wanting higher oil prices to sustain their economies after years of mismanagement; and Saudi Arabia and other Gulf states wanting to keep prices low to keep demand for oil afloat in the longer term.

But, in my view, two other geopolitical factors ensured that this usual debate did not find a middle ground. The first is the fact that the Arab Spring has intensified the rivalry between Shiite Iran and the Sunni Persian Gulf States who fear the rise of Persian power in the region, which has been playing out in Bahrain and to a certain extent in Libya.

The second has to do more with Iranian politics. Iranian President Mahmoud Ahmadinejad, whose uneasy relationship with the Supreme Leader Ayatollah Khamanei has soured in recent months, has stepped up his anti-Israeli rhetoric and defiance about Iran’s nuclear program, and was trying to use Iran’s assumption of OPEC’s rotating presidency as an opportunity for more grandstanding. Mr. Ahmadinejad actually fired the former oil minister and initially took the position for himself, only to have it declared unconstitutional. He was then forced to select an ally Mohammad Aliabadi.

The broader point to emphasize is that events in the Middle East, which is still the main region from which the world gets most of its oil, have increased the role of geopolitics in the context of energy, with potentially profound consequences for oil supply and production. At a time when the world’s demand for black gold is rising feverishly on the back of Indian and Chinese growth, that is something to be worried about.

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