Opec, Opec+ to play strategic role in global oil market
September 28 2021 05:48 PM
Saad al-Kuwari

By Saad al-Kuwari

* Will Opec+ replace Opec?
* The difference between Opec and Oapec and the importance of the presence of oil-exporting countries as a member of these organisations
* The price of oil may reach $90 in 2021, and the price of gas is $25 per British thermal unit

In recent years, the Opec+ group was formed, and it seemed as if that it took the place of the Organisation of Petroleum Exporting Countries (Opec) and currently controls its decisions regarding production.
In these lines, we review an overview of the founding and history of Opec, in addition to the recent changes that afflicted the organisation.
The Organisation of Petroleum Exporting Countries was established some 60 years ago, during a conference in Baghdad in September 1960.
The organisation was co-founded by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela, then Qatar joined them one year later; Indonesia and Libya two years later, the UAE in 1967, Algeria in 1969, Nigeria in 1971, Ecuador in 1973, Gabon in 1975, Angola in 2007, and Guinea Tropical 2017, Congo 2018.
Among those countries, Indonesia suspended its membership twice, the last of which was in 2016 and its membership is still suspended today. Qatar withdrew from the organisation early last year and Ecuador withdrew early this year.
Opec says that its goal is to co-ordinate and unify the oil policies of member states in order to secure fair and stable prices for producers, provide sufficient and regular supplies of oil at reasonable prices to consuming countries, in addition to achieving reasonable profits for investors in the oil sector.
One of the key objectives of Opec, the “Oil Exporters Club”, is safeguarding the interest of the member states, although its strategy in many cases includes taking into account the interests of consuming countries and maintaining supplies so that the price becomes fair to producers and end users.
This year witnessed a price war between Russia and Saudi Arabia that led to a huge increase in the volume of supply, during the first months of the outbreak of the corona epidemic, and a significant drop in demand.
Many people often get confused between the name "Opec" and "Oapec", especially when dealing with news about them, which carries a similar content about the field of oil and its exports, so it is necessary to shed light on the difference between them, and to clarify the relationship between them.
Although they are two names for two independent organisations, and each of them has its role, there is a relationship between them as well. This link is represented in the presence of seven members of the participating countries in “Opec” who are members of “Oapec” as well, in addition to the text of Article Three of the agreement establishing the “Oapec", that the goals of the organisation do not conflict with the goals of "Opec", especially with regard to the rights and obligations of the members of "Opec".
The “Opec” organisation is global that includes all the oil exporting countries in the world, while the “Oapec” is limited to the Arab oil exporting countries only.
And according to the “Oapec” agreement, any member who joins it must abide by the levels of taking into account the prices that Opec’s decisions aim at, in a way that helps to strengthen the countries of the Opec in working to stabilise markets and maintain price levels. Therefore, it is better to have members in the two organisations to achieve the desired goal.
The price war and the epidemic led to a drop in oil prices to below zero in a historical precedent, before everyone realised the matter and the Opec+ reduced production a historical reduction.
This war also came a few years after the formation of the Opec+ group, which included, in the membership of Opec, some 10 other non-Opec oil exporters who wish to cooperate, led by Russia.
The first achievement of the organisation is “rent spending”, as companies calculate the return they pay to countries in exchange for extracting and using the natural resource (oil) as part of taxes or profits, while countries began to demand that it is independent of anything else, and this insistence led to an increase in revenues those countries significantly.
As for the second achievement, it was encouraging member states to increase participation in companies so that they would not be completely foreign. This was implemented by member states either through nationalisation, as in the case of Libya and Iraq, or through gradual buying of shares, as in the GCC countries. This enabled these countries to control production and exports
As for the issue of influencing prices by changing production and the amount of oil available in the markets, I believe, Opec was not able to completely inherit this role from the major oil companies, as the latter had "vertical and horizontal" control over the entire industry, from oil exploration to its distribution to the consumer.
Whereas, Opec only controls production and exports.
Historically, it has been known about Opec that when it was deciding to reduce production, it did not force member states to do so, and it does not punish countries that do not abide by the decision.
But this seemed to have changed now, as after the historical reduction decision following the price war and the coronavirus pandemic, attempts began to impose reduction decisions on oil-producing countries to equalise the price and maintain a balanced market regarding supply and demand.
It is noteworthy that the talk about Opec is gradually decreasing in contrast to the emergence of Opec+, and just as Saudi Arabia was the backbone of Opec, the Saudi-Russian duo is the backbone of Opec+.
And Saudi Arabia remains the most influential, even in the time of Opec+.
Although “Russia has produced, in recent years, more oil than Saudi Arabia, no one talks about Russia as they do about Saudi Arabia. Why?
Simply, because Saudi Arabia is the only country that has an excess production capacity that it can use at any time, and it is the only country that can reduce production in large quantities without affecting much on its economy. Russia cannot do that.
As for Opec and Opec+, as is the case with all oil-related stakeholders, one of the challenges may be the global efforts to reduce dependence on oil in order to combat climate change and shift to clean and renewable energy such as gas.
I believe that the demand for oil will continue to grow at least until 2050, even if this growth is less than before, which means that Opec and Opec+ will remain a strategic role to play in the global oil market and will be reflected in refined infesting derivatives, petro-chemicals and gas.


Saad Abdulla al-Kuwari is an expert in oil and gas and is exploring the future of energy.    

Last updated: September 28 2021 05:51 PM

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