When representatives of the 14-nation Organization of Petroleum Exporting Countries sit down in Baku next month for a meeting of their ministerial monitoring committee, they will be faced with a dilemma: which of the representatives of founder-member Venezuela will they recognize?
The South American country – and holder of the world’s largest proven oil reserves – is currently undergoing its worst civil strife in years. Opposition politician and President of the Venezuelan National Assembly Juan Guiado has proclaimed himself the country’s interim president, gaining backing from the United States and a number of South American and European states.
The embattled Venezuelan president, Nicolas Maduro, has explicitly called on OPEC for “firm support and collaboration” in his battle against Guaido. But the opposition leader may well send a representative to the Azeri capital for the March 17-18 gathering.
While this will not be the first time OPEC has had to deal with such conundrums – rival Libyan leaders posed a similar dilemma after the overthrow of Muammar Gadhafi – it does underline a continuing challenge for the 59-year-old oil cartel.
“While OPEC might say it is a non-political organization, just trying to bring stability to the oil market … that stability depends, of course, very much on global politics,” said Herman Wang, Senior Oil News Analyst for S&P Global Platts.
The standoff in Venezuela is not the only international relations crisis to challenge the organization in recent years.
These include major geo-strategic divisions among some of its leading members, namely Saudi Arabia and Iran, as well as the 20-month-long Gulf crisis between a Saudi-led bloc and Qatar – a division that many saw as a factor in Doha’s decision to leave OPEC in December of last year.
Meanwhile, there is the steady progress of anti-cartel legislation known as NOPEC through the legislature of a key Saudi ally, the United States, where President Donald Trump has also made no secret of his dislike of the organization and frequently rails against its perceived efforts to boost oil prices.
At the same time, OPEC’s efforts to boost its declining oil market influence have led it into closer cooperation with the increasingly influential non-OPEC member, Russia.
This cooperation has so far taken the form of two agreements to cut production and arrest declining oil prices.
“Russia’s cooperation has contributed to the defense of market stability,” Neil Atkinson, head of the Oil Industry and Markets Division at the International Energy Agency, told Asia Times. “With this, the oil market has entered a new phase.”
Despite Saudi-led efforts to formalize this cooperation, Russia has so far declined to become tied too closely to OPEC.
“While the alliance with Russia gives OPEC more heft,” said Wang, “the Russian oil companies are pushing back against a more formal arrangement. Partly this may be because they want to avoid any fallout from NOPEC, but also because they want a freer hand in deciding what they produce and when.”
Behind all this, too, are some long-term trends in the global oil market, with the emergence of the US as not only the world’s leading oil consumer but also its leading producer.
Indeed, non-OPEC members overall have boosted their share of the global oil market over the years, from around 47% of world oil production in 1973 to around 60% today, according to US Energy Information Authority figures.
Yet, for all its challenges, the organization still has some major strengths – with these likely to see it maintain its key position in the global energy market for many years to come.
“Global oil demand will continue to grow for the next 20 years at least,” said Atkinson, “and the OPEC countries will continue to sit on a major part of the world’s oil reserves.”
OPEC’s own figures show that in 2017, its members accounted for around 82% of the world’s proven crude oil reserves.
“OPEC countries such as Saudi Arabia have some of the cheapest oil to produce,” said Wang. “If we do go towards a less oil-dependent world, the more expensive oil projects will be the first to go – things like shale oil and deepwater oil. OPEC will still contain the members with the cheapest oil to extract, so their market share will be protected.”
Meanwhile, on 17 April, Russian officials will meet with OPEC member states in Vienna at the organization’s conference, with many waiting to see if a new structure for cooperation emerges.
OPEC leaders have also shrugged off Qatar’s departure, with the Qataris themselves saying that oil was only a small part of their energy industry and that they would be concentrating on developing their much larger natural gas exports.
However, “Trump remains the wild card,” said Wang. “He has criticized OPEC more than any other cartel in the past, yet he has also reached out a lot to Saudi Arabia, with his relationship with the Saudis the bedrock of his Middle East policy.”
The American leader therefore may have a dilemma of his own, if NOPEC legislation advances through a Congress increasingly hostile towards Saudi Arabia in the wake of the Khashoggi murder.
When it comes to the Venezuela file, OPEC has thus far shown no sign of breaking with the government of President Maduro, whose representatives remain pictured on the organization’s website. OPEC has not, however, publicly rejected opposition leader Guaido, who in mid-February appointed a rival board to oversee the state oil company PDVSA and its US subsidiary Citgo. US Vice President Mike Pence has since urged Latin American countries to freeze PDVSA’s assets.
US sanctions on Venezuela have driven up oil prices – although not by much.
“There is currently quite a lot of spare capacity when it comes to the heavier, high-sulphate kind of oil Venezuela produces in countries such as Saudi Arabia and other Gulf states,” said Atkinson.
The upcoming Baku meeting may reveal if US pressure trumps Maduro’s appeal for OPEC member solidarity.
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