OPEC; New Crisis or New Horizon

After the meeting, OPEC decided to cut 800,000 b/d from its output while non-OPEC participating countries in the "Declaration of Cooperation" reached agreement on cutting 400,000 b/d from their production – a total 1.2 mb/d – in a bid to shore up oil prices.

Nonetheless, the output cut decision failed to prevent the emergence of discrepancies between member states. OPEC developments have given rise to the following question: "Will OPEC continue to remain an influential oil body or will it be entangled in a serious crisis and go to the brink of collapse?

Challenges

Over the past two years, OPEC has seen numerous developments, some of which have been internal and some others imposed from outside or at last accepted by some member states. Some of major issues OPEC has been grappling with are as follows:

1.      US Continued Political Meddling: Under President Donald Trump, the United States has more than ever meddled evidently with OPEC affairs. The Trump administration is seeking to push ahead with its objectives owing to its influence on Saudi Arabia. Over the past two years, President Trump has not ceased to demand that OPEC raise its output so that oil prices would fall.

In addition to the objectives Trump is pursuing in the US economy, restricting Iran's role in global markets and ratcheting up the pressure on Tehran has been one of the most important US intentions behind its interference with OPEC affairs. To that effect, the Trump administration has constantly called on Saudi Arabia and some other OPEC member states to raise their output so that the oil market would not face a big shock as a result of the US pressure for limiting Iran's oil exports.

2.      Politicization by Member States: A pillar of OPEC has been a requirement for member states to economically look at the issue of energy. But some members like Saudi Arabia have in recent years adopted a political approach vis-à-vis energy and have been trying to use their capacities against other nations. Saudi Arabia's violation of OPEC output cut deal with the political motivation to fill Iran's void is a politicized move within OPEC. Undoubtedly, the continuation of politically motivated measures and marginalizing economy-oriented analyses would strike an irreparable blow at OPEC and turn this energy body into a venue for political conflicts.

3.      Russia's Greater Role in OPEC Decisions: Ever since the issue of OPEC production freeze and output decline was raised, Russia emerged as a major non-OPEC partner. Moscow has undeniably been instrumental in the conclusion of OPEC-non-OPEC deal and the success of the production freeze deal. Russia has since won clout with OPEC members. Although cooperation between Moscow and OPEC has proven fruitful, Russia is a non-OPEC state and its growing influence may pose a challenge to the internal mechanisms of the largest oil producer group.

4.      Qatar Exit: When new countries join OPEC the entire organization will be strengthened, but when a member quits the organization will become weaker. Qatar was a minor member state whose exit would not inflict any serious harm on the organization; however, this withdrawal which resulted from political conflicts will have major consequences. Needless to say, Qatar pulled out of OPEC due to its political disputes with Saudi Arabia, and its exist is likely to widen the gap between OPEC member states in addition to between Arab states. Therefore, Qatar's exit from OPEC would not be good news and may bring changes to political groupings within OPEC. Furthermore, the exit of a country from OPEC would have also psychological impacts because it may prove the inefficacy of the organization and persuade other members to follow suit.

OPEC Outlook

Over recent years, convergence or divergence among OPEC members has been the major factor in the success or failure of the organization. Therefore, the factor that could help clarify OPEC developments in the future is cohesion within the body and approaches pursued by member states. In case OPEC members decide to look at energy market developments politically, the organization will be faced with serious challenges because political differences would hinder any reasonable decision-making based on economic criteria and that could pose a challenge to OPEC decision-making under sensitive circumstances. Furthermore, in case the US continues its political differences within OPEC internal affairs and pushes its own objectives and interests within OPEC via its ally Saudi Arabia, more divergence is likely to transpire the organization.

Meantime, OPEC has to shed light on its mode of interaction with non-OPEC oil producers. Cooperation with countries like Russia is very helpful for controlling oil prices in the world markets, but such interaction does not rely on any structured framework and such agreement is likely to be killed under the impact of a sudden event. Therefore, in order to systematize its relations with other oil producers, OPEC is required to envisage a well-structured mechanism.

OPEC is also required to preserve its attractiveness for member states. If for whatsoever reason the interests of member states are not pursued, they will no longer be willing to remain member. Collective decision-making, avoiding politically-motivated conflicts, respecting the interests and conditions of fellow members and averting any meddling by non-members in the decisions are among issues which could persuade member states to stay within OPEC.

Undoubtedly, if such issues are not taken into consideration, member states will quit this big organization one after another because if the interests of a country are ignored or all OPEC decisions turn out to be unilateral and in favor of certain members others will have no motivation to remain in the Organization.