The “old” politics of Opec, which split the cartel and marred its influence in the oil market of the 1990s, have made an unexpected return after a decade-long absence.
The acrimony that derailed Wednesday’s meeting has wider implications than the short-term failure to agree a production rise wanted by Saudi Arabia but opposed by price hawks Iran and Venezuela. It signals that Riyadh’s moderate views on what should be the prevailing oil price carry less weight in a group now more influenced by Tehran and Caracas.
“This is the worst division in Opec in more than a decade,” says David Kirsch, director of market intelligence at consultants PFC Energy and a veteran Opec watcher. “But the differences are not as wide as they were in the 1990s.”
I think the market reading of the consequences of OPEC’s failure to increase production is shortsighted. Soon enough some OPEC countries, particularly in the Middle East, will further raise their production in order both to give the world some breath and regain a more stable economic growth, as well as to finance their increasing requirements of social funding to appease local demands for more democracy. Within an agreement OPEC countries could control output and, indirectly, prices. Without it a lack of order will have a greater impact in competition against each other, as they will seek to achieve short term revenues in a rarefied market. Of course, eventually they will regain control but that is not easy, and definitely not soon enough to avoid the internal consequences of lower income for those countries with relative production constraints.
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