OPEC Clout Fading

OPEC Clout Fading OPEC Clout Fading

Mahdi Rastad, a faculty member at California Polytechnic State University in a lecture at Allameh Tabatabaie University in Tehran said, “The Organization of the Petroleum Exporting Countries (OPEC) should take punitive steps against members not committed to their export quotas. The states convene regularly to decide production, prices and sales, but later do not observe export ceiling.” IRNA quoted the lecturer as saying.

Addressing a panel on ‘OPEC Members’ Behavior” Rastad remarked,” the 12 member countries, Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates and Venezuela, determine the quotas and prices based on overall market demand. Surprisingly, small members violate their quotas more than the bigger producers. Qatar as a case in point, whose export at times exceeds 18.5 percent of its assigned share. Needless to say, Saudi Arabia has hardly ever respected its commitments.”

Pointing to OPEC’s history he noted, “Unlike other economic cartels, OPEC has been in existence for a very long time. Founded at the Baghdad Conference in September 1960, by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela, it still continues to survive, OPEC’s objective is to coordinate and unify crude oil policy among members in order to secure fair and stable prices for petroleum producers. But it apparently is losing the clout.”

Surveys indicate that due to economic and political pressures, disregarding quotas is noticed more when prices either tumble or jump. Still, as long as prices do not take a big hit, members seem inclined to keep their pledges, the California polytechnic teacher said.

  Unable to Make a Difference

Dr. Behrooz Abdolvand, a consultant in the energy sector and coordinator of the “Caspian Region Environmental and Energy Studies” program opines that OPEC is able neither to fulfill its obligations nor deliver.

“OPEC has lost much of its importance during the last 30 years as global oil demand was 60 million barrels per day in 1970s and OPEC produced half of it. Now global demand is 92 million barrels a day and OPEC barely produces one third of it. So the organization has lost its capability to impact price and production,” IRNA quoted him as saying.

Regarding Iran’s regaining market share, Thomas Pugh, commodities economist at British economic research and consulting company Capital Economics says, “We think it is highly unlikely that other OPEC members would cut back their own output to allow Tehran to resume its market share, so any increase in supply from Iran should put downward pressure on oil prices,” Fars news agency reported.

The expert said, “Despite more rising tensions in the Middle East, supply from OPEC has continued to climb, even before the potential boost from the easing of western sanctions on Iran”.

Iran currently exports around one million barrels per day (bpd) of oil, less than half the 2.2-2.3 million bpd it exported before the sanctions were imposed in 2012. OPEC crude production quota stands at 30 million barrels per day.

At a meeting in November 2014 the once powerful organization decided not to change the quota, despite the falling oil prices at the time and the persuasions of some countries to cut production to stabilize prices. The next OPEC meeting is slated for June 4, following which it is scheduled to take a final decision on the issue of production quotas.