Global Finance against Global Energy Market !
OPEC was set up on September 14th, 1960 at the Baghdad Conference by five oil-producing and exporting countries: Saudi Arabia, Iran, Iraq, Kuwait and Venezuela. Facing a context of low energy prices and an organised oil industry, OPEC was given the mission of guaranteeing the oil-producing countries a “fair and stable” oil price by controlling the exports. Until September 1st, 1965, the Headquarters were located in Geneva (Switzerland), until they were moved to Vienna (Austria).
OPEC played an important part in the two oil shocks of 1973 and 1979. In 1973, during Yom Kippur War, the Arabic OPEC Member States unilaterally increased by 70% the price of a barrel of crude oil, imposed a monthly reduction of the oil production by 5% and set up an embargo on oil supply to the United States and Western Europe. Between October 1973 and January 1974, the price of the reference “light Arabian” crude oil barrel was multiplied by four, from $2,32 to $9 a barrel. Although the embargo only lasted for five months, it triggered a two-year-long economic crisis. The oil price never fell back to its pre-crisis level.
From 1979 to 1981, under the effect of both the Iranian revolution and the beginning of the Iran-Iraq war, the oil-producing countries were not anymore able to meet the growing demand of consumer States which had been experiencing economic rebound since 1975. In spite of active policies led by OPEC, in particular the significant increase in the Saudi production, the price of “light Arabian” oil tripled and reached a record level of $40 a barrel in September 1979. This triggered a very strong increase in energy costs and an economic crisis that lasted until 1983.
In the 1980s, the oil prices fell, which led to a significantly lower income from oil exports for the OPEC Member States. The role of OPEC on the international level weakened in comparison to the previous decade. Nowadays, OPEC suffers from the competition of international markets such as the International Petroleum Exchange (IPE) in London and the New-York Mercantile Exchange (NYMEX) in New-York.
Member States and governance
OPEC comprises thirteen Member States: Algeria, Angola, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, the Republic of the Congo, Saudi Arabia, the United Arab Emirates and Venezuela. Meanwhile, Ecuador, Indonesia and Qatar are former OPEC members
In 2016, the Member States of OPEC represented 73,8% of the world’s estimated oil supply, 44,5% of the crude oil production and 18% of the natural gas production.
GLOBAL FINANCE AGAINST GLOBAL ENERGY MARKET !
Karin Kneissl is an #Austrian diplomat and politician. A Middle East expert, she was Minister of Foreign Affairs from 2017 to 2019.
In an excellent article published on the site https://lnkd.in/ecE-Hb8n, Karin Kneissl gives us her opinion on the confrontation between global #finance (led by the #USA) and the global #energy market (dominated by the #China and #OPEC+).
“On October 6, when the European Union (#EU) agreed to impose a cap on the price of #Russian oil as part of a new sanctions package against Moscow, 23 oil ministers from the OPEC + group of producing countries oil companies have declared themselves in favor of a sharp reduction in their joint production quota.
Their collective decision to cut production by around two million barrels of oil per day has provoked strong reactions in the USA in particular, and there have even been talks of “declaring war”. The EU feels cheated as OPEC+ production cuts could drive up fuel prices and ease their eight sanctions plans. OPEC and ten non-OPEC energy producers – including #Russia – have been coordinating their production policy since December 2016.
Unlike the escapades in the oil market between 1973 and 1985, when there was little consensus among OPEC members and many had already written the organization’s obituaries – today, former rivals like Saudi Saudi Arabia and Russia manage to converge their interests.
To truly understand the crux of the conflict in #Ukraine – where a proxy war is raging – one must break the confrontation down this way: the US and its European allies, who represent and support the global financial sector, are essentially engaged in a battle against the energy sector.
Over the past 22 years, we have seen how easy it is for governments to print paper money. In 2022 alone, the Fed printed more notes than in its combined history. Energy, on the other hand, cannot be printed. And therein lies a fundamental problem for Washington: the commodities sector can outbid the financial sector.
Since the start of the military conflict in #Ukraine in February 2022, we have essentially watched the #Western-led financial sector wage its war against the Eastern-dominated #energy economy. The momentum will always be with the latter, because as stated above, unlike money, energy cannot be imprinted.
The volumes of oil and gas needed to replace Russian energy sources cannot be found on the world market in a year. And no commodity is more globalized than #oil. Any change in the oil market will always influence the global economy. “
Global Finance vs global energy: who will come out on top?
There is more to the current struggle between the oil-consuming west and the oil-producing nations than meets the eye and it runs far deeper than the war in Ukraine
Karin Kneissl – October 13 2022
Photo Credit: The Cradle
In the war between global finance and energy, one fact remains clear: You can print money but you can’t print oil
On 6 October, when the European Union (EU) agreed to impose a Russian oil price cap as part of a new package of sanctions against Moscow, 23 oil ministers from the OPEC+ group of oil-producing countries spoke out in favor of a sharp cut in their joint production quota.
Their collective decision to decrease output by about two million barrels of oil per day elicited strong reactions in the US in particular, and there was even talk of “declarations of war.” The EU feels duped, as the OPEC+ production cuts could drive up fuel prices and dampen their eight sanctions packages. Despite the narrative of the world edging toward a “post-oil era,” it seems there’s life in the old dog yet, as OPEC remains the talk of the town.
OPEC is as relevant as ever
OPEC and ten non-OPEC energy producers – including Russia – have been coordinating their production policy since December 2016. At the time, analysts gave this “OPEC-plus” format little chance of having an impact.
Back then, I recall the mockery of many who scorned the announcement in the press room of the OPEC General Secretariat in Vienna. But OPEC has weathered the storm of the global oil market in recent years, and has emerged as a key player.
Recall the exceptional situation in the spring of 2020 during the global COVID-19 pandemic lockdown, when futures trading for US oil grades were even quoted at negative prices at times, only to rise again to new heights in April 2021.
In contrast to the escapades in the oil market between 1973 and 1985, when there was little consensus among OPEC’s members and many had already written the organization’s obituary – today, former rivals such as Saudi Arabia and Russia are managing to converge their interests into powerful cards.
In those days, it was normal practice for Riyadh to take into account and execute Washington’s interests within OPEC: A single phone call from the US capital was enough. When the US oil company ARAMCO – which acted like an extended arm of the US in the kingdom – was nationalized by Saudi Arabia in the early 1970s as part of the sweeping nationalization trends around the world, compensation was promised to the US on a mere handshake.
The era of the “Seven Sisters,” a cartel of oil companies that divided up the oil market, came to an end then. However, for US policymakers – at least, psychologically – this era still persists. “It’s our oil,” is an expression I often hear uttered in Washington. Those voices were particularly loud during the illegal US-led 2003 invasion of Iraq.
Financial market versus the energy market
To really understand the core of the conflict in Ukraine – where a proxy war rages – one must break down the confrontation thus: The US and its European allies, who represent and back the global financial sector, are essentially engaged in a battle against the world’s energy sector.
In the past 22 years, we have seen how easy it is for governments to print paper currency. In just 2022, the US dollar has printed more paper money than in its combined history. Energy, on the other hand, cannot be printed. And therein lies a fundamental problem for Washington: The commodity sector can outbid the financial industry.
When I wrote my book “The Energy Poker” in 2005, I also dealt with the currency question, i.e. whether oil will be traded in US dollars in the long term. At the time, my interlocutors from the Arab OPEC countries unanimously said that the US dollar would not be changed. Yet, 17 years later, that view has devolved starkly.
Riyadh is warming up to the idea of trading oil in other currencies, as indicated this year in discussions with the Chinese to trade in yuan. The Saudis also continue to purchase Russian like other West Asian and Global South states, they have opted to ignore western sanctions on Moscow, and are increasingly preparing for the new international condition of multipolarity.
Washington, thus, no longer maintains its ability to exert absolute leverage on OPEC, which is now repositioning itself geopolitically as the enlarged OPEC+.
US reacts: Between defiance and anger
The OPEC+ ministerial meeting on 6 October was a clear foreshadowing of these new circumstances. The inherent tensions between two world views unfolded immediately in the post-meeting press room where a Saudi oil minister put the western news agency Reuters in its place, and where US journalists fiercely attacked OPEC for “holding the world economy hostage.”
The next day, a tough policy was grudgingly announced by the White House. The OPEC+ production cuts has Washington vacillating between sulking and seeking revenge – against the once-compliant Saudis, in particular. In a few weeks US midterm elections will be held, and the ramifications of spiking fuel prices will no doubt unfold at the ballot box.
For almost a year, President Joe Biden has been expanding US fuel supply via the Strategic Petroleum Reserve, but has been unable to calibrate either the price of oil or runaway inflation. The US Congress is threatening to use the so-called “NOPEC” bill – under the legal pretext of banning cartels – to seize the assets of OPEC governments.
The concept has been floating around for decades on Capitol Hill, but this time new irrational emotions may own the momentum. But hostile or threatening US actions are likely to backfire and even accelerate the geopolitical shifts taking place in West Asia, which has been edging out of the US orbit in recent years. Many Arab capitals have not forgotten the unseating of Egyptian President Hosni Mubarak in 2011, and how quickly the US abandoned its long-term ally.
“It’s the economy, stupid”
The price of oil is a seismograph of the world economy and also of global geopolitics. With the production cuts, OPEC+ is simply planning in anticipation of upcoming recessionary consequences. Moreover, some producing countries are failing to create new capacities in view of the investment gap that has persisted since 2014: a low price of oil simply cannot be sustained if there is no major capital investment in its sector.
The energy supply situation is expected to further worsen as of 5 December, when the oil embargo imposed by the EU comes into force.
The fundamental laws of supply and demand will ultimately determine the many distortions in the commodity markets. The anti-Russian sanctions created by the EU and other states (a total of 42 states) have disrupted global supply, and that has man-made supply and pricing consequences.
The two major global financial crises – real estate and banks in 2008, and the pandemic in 2020 – led to the excessive printing of paper money. Ironically, it was China that moved the paralyzed global economy out of the first crisis: Beijing stabilized the entire commodity market in 2009/10 by serving as the global locomotive and bringing the yuan into the trading schemes.
China, the well-oiled machine
Until the early 1990s, China satisfied its domestic oil consumption with domestic oil production, ranging from 3-4 million barrels per day. But fifteen years and a rapidly-expanded economy later, China had turned into the world’s number one oil importer.
This status reveals the crucial role of Beijing in the global oil market. While Saudi Arabia and Angola are important oil providers, Russia is the main gas supplier for China. As former Premier Wen Jiabao once aptly observed: “any small problem multiplied by 1.3 billion will end up being a very big problem.”
For the past 20 years, I have argued that pipelines and airlines were moving east not west. Arguably, one of Russia’s biggest mistakes was to invest in infrastructure and contracts for a promising but ungrateful European market. The cancellation of the South Stream project in 2014 should have served as a lesson to Moscow not to enlarge Nord Stream as of 2017. Times, nerves, and money could have been better spent on expanding the grid heading east.
It’s never been about Ukraine
Ever since the start of Ukraine’s military conflict in February 2022, we have essentially been watching the western-led financial industry waging its war against the eastern-dominated energy economy. The momentum will always be with the latter, because as stated above, in contrast to money, energy cannot be printed.
The oil and gas volumes needed to replace Russian energy sources cannot be found on the world market within a year. And no commodity is more global than oil. Any changes in the oil market will always influence the world’s economy.
“Oil makes and breaks nations.” It is a quote that epitomizes the importance of oil in shaping global and regional orders, as was the case in West Asia in the post-World War I era: First came the pipelines, then came the borders.
The late former Saudi oil minister Zaki Yamani once described oil alliances as being stronger than Catholic marriages. If that is the case, then the old US-Saudi marriage is currently undergoing estrangement and Russia has filed for divorce from Europe.
The views expressed in this article do not necessarily reflect those of The Cradle.
Author: Karin Kneissl
China energy markets energy sector EU fiat financial sector oil and gas oil prices oil production cuts OPEC
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