OPEC was formed in 1960 by the founding members Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. For a brief period, the oil cartel became the dominant force behind world oil prices and an important geopolitical broker, with its members controlling almost half of world oil production and more than three quarters of global oil reserves. As US oil production entered a period of seemingly inexorable decline after its 1970 peak, wish To strengthen energy security and create a stronghold against communist expansion in the Middle East, Saudi Arabia has become an important ally of the United States. OPEC, at the height of its power in the 1970s, flexed its muscles by cutting oil production, causing prices to spiral upward, triggering two oil price shocks that triggered global recessions. Since then, OPEC’s power has steadily deteriorated, with the decline accelerating over the past two decades due to the rapid growth in non-OPEC oil production, especially in the United States and Brazil.
The shale oil boom in the USA has caused onshore production to increase rapidly after nearly three decades of decline. US crude oil imports from the Middle East plummeted and Congress lifted a four-decade restriction on U.S. oil exports. Even the Riyadh plan for 2014 to recover market share and obliterate the U.S. shale oil industry by opening the taps and significantly increasing Production, causing crude oil prices to fall steadily, failed. In 2018, the US exceeded 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 grown with the fall in oil prices in March 2020, having little sustained material impact on the U.S. shale oil industry. The US Energy Information Administration estimates that the US Oil production in 2020 average of 11.3 million barrels of crude oil per day which, although it has a 7% decline compared to 2019, is still notable 29% higher than the 8.8 million barrels produced daily during 2014 during the peak of the shale oil boom. The EIA expects U.S. oil production in 2021 to decrease 2% year-over-year to 11.1 million barrels a day, which is still 26% higher than in 2014. The resilience of the US shale oil industry may be attributed to the improvement of technology and experience that, together with growth, operational efficiency has caused a steady fall in equilibrium prices. According to the Dallas Federal Reserve, new shale oil wells have an average equilibrium price from $ 46 to $ 52 per barrel compared around $ 77 a barrel in 2014. There is every indication that U.S. shale could surprise energy markets once again during 2021 and continue to pump crude at a furious pace, regardless of lower prices. US foreign policy is also eroding OPEC’s geopolitical power and ability to manipulate oil prices. Sanctions against Iran and Venezuela are preventing these oil-rich nations from expanding oil production or strengthening their influence within the cartel. He also rewards Saudi Arabia for slowing Iran’s economic growth, thereby reducing Tehran’s influence in the Middle East and consolidating Riyadh’s authority as OPEC’s main producer. From the white house petro-diplomacy under President Trump highlights the decreasing influence of OPEC and the ability to manipulate oil prices. During 2018, when Brent rose to more than $ 70 and was flirting with $ 80 a barrel, threatening U.S. economic growth, Trump heavy putting pressure on OPEC to increase production while keeping prices low. Then, in early April 2020, after oil prices plummeted because of the COVID-19 pandemic and the impending price war between Saudi Arabia and Russia, threatening the survival of the U.S. shale oil industry, Trump intervened once more. He contacted Riyadh and threatened the withdrawal of American troops, unless the Saudi cuts production to raise crude oil prices.
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It is not just the rapid growth of United States oil production over the past decade that is challenging OPEC’s control over oil prices and geopolitical power. Saudi Arabia’s growing dependence on US support to wage its proxy war against Iran for control of the Middle East and leadership of the Muslim world, as well as OPEC, has weakened the cartel’s independence and geopolitical power. Riyadh benefits enormously from Washington’s foreign policy, notably the severe economic and diplomatic sanctions imposed on members of OPEC, Iran and Venezuela. By denying both countries access to global energy markets, they are unable to increase their oil production, limiting their influence and giving Saudi Arabia a freer hand to establish cartel policies. This guarantees no Venezuela nor can Iran especially thrive on the increase in economic wealth that comes from increased oil production, putting severe pressure in both pariah regimes while strengthening Saudi Arabia’s position. A stronger, but somewhat less independent, Saudi Arabia magnifies the effect of United States regional policy, while giving Washington a more reliable proxy for influencing regional affairs and maintaining control over the vast oil resources of the East Medium. It also dulls Moscow’s ability to expand its regional influence through its convenience alliance with Tehran, which saw the two countries support President Bashar al-Assad’s dictatorial regime during the bloody Syrian civil war. These developments have given Washington a greater voice in OPEC oil production and, ultimately, prices. This is underlined by Riyadh decision to cut a million barrels a day of Saudi Arabian oil production to boost prices and absorb the increase in Russian production. Riyadh not only raised oil prices at a critical time, especially for U.S. shale, but indicates that the Saudi government is trying to get favors from the next Biden government.
For these reasons, President Biden should carefully consider whether to re-adhere to the Joint Comprehensive Action Plan (JCPOA) and removing all U.S. sanctions is the right move, especially with Tehran uranium enrichment in violation of the agreement. This is particularly the case when Iran’s recent belligerence and aggression are considered. The Islamic Revolutionary Guard Corps recently apprehended a South Korean tanker in the Strait of Hormuz, while Tehran is increasing Support, support for the dictatorial socialist regime of the President of Venezuela, Nicolás Maduro, despite the massive humanitarian crisis his government took off.
By Matthew Smith for Oilprice.com
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