Russia: Say goodbye to OPEC

Over 40 years have passed since the oil cartel OPEC (Organization of the Petroleum Exporting Countries) squeezed output and helped create a gasoline shortage in 1973 for American consumers. They managed to do it again in 1979, thanks in large part to a regulatory and tax mess that handcuffed US production of oil and gasoline. OPEC remained a force in world markets, setting production limits and forcing Western countries to negotiate on their terms.

Those days are over, as anyone watching the price of oil in the global markets can see. Western countries, especially the US, have unshackled their own production and have forced the cartel nations to keep pumping in order to keep up. A desperate OPEC bid to cap production ran afoul of internal politics, and now Russia says the cartel is all but dead:

Internal differences are killing OPEC and its ability to influence the markets has all but evaporated, top Russian oil executive Igor Sechin told Reuters in some of his harshest remarks ever about the oil cartel.

Russia, which has been hit hard by the oil price collapse, was flirting with the idea of cooperating with OPEC in recent months until tensions between OPEC members Saudi Arabia and Iran ruined a global deal to freeze output.

Sechin – one of the closest allies of President Vladimir Putin – was the only Russian official to consistently oppose the deal with OPEC even after the Kremlin effectively endorsed the plan.

Now that his gloomy predictions about talking to OPEC have come to pass, Sechin feels vindicated and wants to help Russia avoid similar embarrassment in future.

Russia is not an OPEC member state, but it’s not difficult to see why Vladimir Putin would have wanted to cooperate with OPEC. The current production glut has dramatically lowered crude prices, battering the oil-dependent Russian economy. That’s no accident either; the West has encouraged production as a way to contain Putin’s global ambitions and to undermine his political strength after his conquest of Crimea and his war in eastern Ukraine. Russia needs the price of oil to rise sharply in order to get its economy back on track, and Putin needs to make sure that his regime does not crumble in the face of popular unrest over economic woes.

Seeing Russia throw in the towel on OPEC probably puts the last nail in the coffin for the cartel as a unitary entity, but it’s been a long time coming. Iran has been sidelined until just recently from oil markets, and it’s all but certain that they will sell large amounts to catch up economically. Iraq and Libya have little or no control over their oil outputs, thanks to the Obama administration’s destabilization of both countries. Algeria’s fending off al-Qaeda and ISIS attacks thanks in part to the failed Libyan state, and Venezuela’s flirtation with communism has handcuffed their crude production. They too will sell every drop they can produce, if they can figure out how to produce it.

Or when. Two weeks ago, Nicolas Maduro announced a two-day workweek for all state employees as an energy-saving measure:

When OPEC nations have energy crises, then it’s pretty clear that the cartel’s strength has declined, perhaps all the way into irrelevance. Right now it’s every nation for itself … and that’s not a bad development.

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