OPEC was founded in 1960 by founding members Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. The petroleum cartel has for a short time become the dominant force behind world prices and a major geopolitical power broker, with its members controlling almost half of the world’s oil production and more than three – quarters of the world’s oil reserves. As U.S. oil production ushered in a period of seemingly relentless decline after its peak in 1970, Washington desire to step up energy security and create a bulwark against communist expansion to the Middle East, Saudi Arabia has become a major ally in the US. OPEC at the height of its power, in the 1970s, flexed its muscles by lowering oil production, causing prices to rise, causing two oil price shocks that caused global recessions. Since then, OPEC’s power has gradually deteriorated, with the decline accelerating over the past two decades due to rapidly growing non-OPEC oil production, particularly in the US and Brazil.
The US shale oil boom has seen onshore production rise rapidly after nearly three decades of decline. U.S. imports of crude oil from the Middle East declined and Congress lifted a restriction on four oil exports to the United States. Even Riyadh’s 2014 plan to recycle wipe out market share and wipe out the US shale oil industry by opening the spikes and significantly strengthening production, which causes crude oil prices to fall steadily, fail. In 2018, the US caught up Saudi Arabia is becoming the world’s largest oil producer, pumping 10.96 million barrels of oil equivalent daily. Since then, production, at the forefront of the shale oil industry, has grown with the collapse of the oil price in March 2020, with little sustained impact on the U.S. shale oil industry. The U.S. Energy Information Administration estimates U.S. 2020 oil production on average 11.3 million barrels of crude oil per day, although a decrease of 7% compared to 2019, is still a significant 29% larger than the 8.8 million barrels gained during 2014 during the peak of the shale oil . The EIA expects 2021 US oil production to fall by 2% year-on-year to 11.1 million barrels per day, which is still 26% higher than in 2014. The resilience of the US shale oil industry can be attributed to the improvement in technology and expertise coupled with growing operational efficiencies has led to a gradual decline in breakthrough prices. According to the Federal Reserve of Dallas, there are new shale oil sources an average break-even price from $ 46 to $ 52 per barrel compared to round There is $ 77 a barrel in 2014. There is every indication that US shale may surprise energy markets again during 2021 and continue to pump oil at a furious pace, despite the soft prices. US foreign policy is also weakening OPEC’s geopolitical power and ability to manipulate oil prices. Sanctions against Iran and Venezuela prevent petroleum-rich countries from expanding oil production or strengthening their influence within the cartel. It also rewards Saudi Arabia by slowing Iran’s economic growth, limiting Tehran’s influence in the Middle East and strengthening Riyadh’s authority as the leading producer of OPEC. The White House’s petro-diplomacy under President Trump emphasizes the declining influence of OPEC and the ability to manipulate oil prices. During 2018, when the Brent rose to more than $ 70 and flirted with $ 80 a barrel, Trump’s economic growth threatened. weighed in put pressure on OPEC to increase production, to keep prices low. Beginning in April 2020, after oil prices collapsed due to the COVID-19 pandemic and looming price war between Saudi Arabia and Russia, threatening the continued existence of the US shale oil industry, Trump intervened again. He has Riyadh and threatened the withdrawal of US troops unless Saudi production reduced production to boost crude oil prices.
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It is not just the rapid growth of US oil production over the past decade that has challenged OPEC’s control over oil prices and geopolitical power. Saudi Arabia’s growing dependence on US support for its proxy war against Iran for control of the Middle East and the leadership of the Muslim world, as well as OPEC, has hampered the cartel’s independence and geopolitical power. weaken. Riyadh is benefiting greatly from Washington’s foreign policy, especially the severe economic and diplomatic sanctions imposed on OPEC members Iran and Venezuela. By denying both countries access to global energy markets, they can not grow their petroleum production, shrink their influence and give Saudi Arabia a freer hand in instituting cartel policies. It does not guarantee one Venezuela especially Iran cannot prosper from the increased economic prosperity resulting from higher oil production severe pressure over both pariah regimes, while strengthening Saudi Arabia’s position. A stronger but somewhat less independent Saudi Arabia is magnifying the impact of US regional policy, while Washington offers a more reliable approach to influencing regional affairs and retaining control of the major petroleum resources in the Middle East. It also undermines Moscow’s ability to expand its regional influence through its alliance of convenience with Tehran, which expanded the country’s support for President Bashar al – Assad’s dictatorial regime during the bloody Syrian civil war. These developments gave Washington a greater say in OPEC’s oil production and ultimately prices. This is emphasized by Riyadh’s decided to cut daily one million barrels of Saudi Arabia’s oil production to increase prices and absorb increased Russian production. Not only has Riyadh boosted oil prices at a critical time, especially for U.S. shale, but it also indicates that the Saudi government wants to favor the incoming Biden government.
For these reasons, President Biden must carefully consider whether joining the Joint Comprehensive Plan of Action (JCPOA) and the removal of all US sanctions is the right step, especially with Tehran. enriching uranium in violation of the agreement. This is especially the case when considering Iran’s recent warfare and aggression. The Islamic Revolution Guards Corps recently seized A South Korean tanker in the Strait of Hormuz while Tehran is raping support for Venezuelan President Nicolás Maduro’s dictatorial socialist regime despite the massive humanitarian crisis released his government.
By Matthew Smith for Oilprice.com
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