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An OPEC crackup? Plenty of tension flowing strong among cartel members

Saturday, December 20, 2014 15:37

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(Before It's News)

TND Guest Contributor: Rob Nikolewski │

NO CUT: Secretary General of OPEC Abdalla Salem El-Badri at a news conference in Vienna after the cartel announced it would ignore requests of some of its members and not curb production. (Source: AP)

It has survived for 54 years, but do tensions within the ranks of OPEC over a decision that’s led to a tailspin global oil prices threaten to split up one of the most famous – and despised — cartels in history?

The Organization of the Petroleum Exporting Countries has flexed its economic muscle for decades. Its notorious oil embargo in the 1970s caused long lines for gasoline and contributed to the “stagflation” that plagued the American economy throughout the decade.

Made up of 12 nations, eight located in the Middle East, its members have become rich and powerful, but now there are signs that all is not well in OPEC Land.

Founded in 1960, OPEC has always experienced strains among its petro-states, but adecision on Nov. 27 not to cut back on oil production has left member countries in dire economic straits angry at the organization’s undisputed leader, Saudi Arabia.

“I’ve always called OPEC ‘Saudi Arabia and the 11 Dwarfs,’ ” energy journalist and author Robert Bryce told Watchdog.org. “The Saudis have always run the show.”

That’s no surprise, considering that Saudi Arabia is the largest exporter of petroleum liquids in the world.

But the United States recently has turned into a prominent force. Using advances in technology -— such as horizontal drilling and hydraulic fracturing — oil producers in America are nipping at the Saudis’ heels.

Earlier this year, figures released by the International Energy Agency showed the U.S. pulling just about even with the Saudis, producing 11.5 million barrels of oil and related liquids each day.

North America’s “energy renaissance” has seen the U.S. boost production by more than 70 percent in the past six years and reduced the nation’s imports from OPEC by to roughly one-half. The increase has put downward pressure on global oil prices.

That’s good news for consumers, but it’s bad news for OPEC members such as Libya, Iran, Venezuela and Nigeria — countries in such economic and political trouble that they need the price of a barrel of oil to be about $120 or higher to stay afloat.

Those countries wanted OPEC to cut back production to prop up prices, but when members met in Vienna in Nov. 27 the cartel — with Saudi Arabia leading way — decided not to curb production and keep on pumping.

That has triggered a worldwide crash in the price of oil, with the cost of gasoline in the U.S. dropping below $2 a gallon in some places.

The representative from Venezuela stormed out of the Vienna meeting after his calls for cuts were rebuffed by the Saudis and a handful of other OPEC members centered in the Persian Gulf.

“This is killing some of the OPEC countries, absolutely killing them,” energy analystDan Steffens, president of the Energy Prospectus Group, said in a telephone interview from his office in Houston.

And although OPEC denies it, it’s considered an open secret that Saudi Arabia is challenging the upstart U.S. producers. The Saudis have lower production costs than the shale drillers in the U.S. and have socked away an estimated $740 billion in oil reserves.

“It is trying to squeeze U.S. shale oil — which requires higher prices to remain competitive with conventional production — out of the market,”Middle East observer Mohamad Bazzi wrote in Reuters.

But there are political explanations as well.

It’s believed that Saudi Arabia also is punishing Iran for supporting Bashar al-Assad’s regime in the Syrian civil war. Qatar and the Saudis have been supplying arms to some of the rebel factions opposed to Assad. An ancillary target is believed to be Russia, an oil giant not in OPEC that has also supported Assad and has defended Iran’s nuclear ambitions.

“Iran is really an adversary and without firing a weapon (the Saudis) can do some damage to Iran and Russia,” Joseph Dancy, investment partner at Dallas-based LSGI Advisors Inc., told Watchdog.org.

The nations getting squeezed are hoping for an emergency meeting of OPEC to reverse the Nov. 27 decision. But last weekend, OPEC Secretary General Abdullah al-Badri said there are no plans for a meeting before OPEC’s next scheduled get-together in June.

“The decision has been made,” Badri said flatly. “Things will be left as is.”

That’s sure to stoke more anger, and has led some to speculation that tensions could risk splitting OPEC apart.

“These poorer OPEC countries, they’re not going to have enough to even fund their maintenance,” Steffens said. “You think they’re going to keep drilling wells? They’re going to cut back because they’re out of money.”

But is it enough to prompt countries like Venezuela, Iran and Nigeria to leave OPEC?

Most experts have doubts.

“I don’t think it would be a real viable option for any of them,” Dancy said. “Really, the only important country in OPEC is Saudi Arabia because they’re the only one with excess production. So if you dropped out, it really wouldn’t help you or even send a message. At least if you stay put in OPEC, they meet every half-year and you could have some input on decisions.”

Steffens is more blunt, saying the smaller OPEC countries are not strong enough to survive on their own.

“Where else are they going to go,” Steffens said. “I don’t see any reason to quit … Who’s going to loan Nigeria money? These guys are totally screwed.”

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About the author:

Rob Nikolewski is the National Energy Corrrespondent for Watchdog.org. He is based in Santa Fe, N.M. Contact him at [email protected] and follow him on Twitter @NMWatchdog.

Watchdog.org is an online news organization that publishes articles by independent journalists covering state-specific and local government activity. The program began in September 2009, a project of Franklin Center for Government & Public Integrity, a 501(c)3 non-profit organization dedicated to promoting new media journalism. This article is reprinted with permission.