Those with long memories probably can recall when meetings of the OPEC oil exporters cartel were major news events, on one occasion horrendously inflated by the terrorist Carlos the Jackal seizing the 11 ministers attending. Without the latter ingredient, one hopes, this week’s meeting in Vienna on Thursday and Friday could dominate many front pages.
Even before Tuesday’s almost 800-point drop in the Dow Jones Industrial Average prompted by doubts about a trade deal with China, the market was responding furiously to economic indicators. The price of oil has dropped 30 percent since October — that’s good for manufacturers, but not good for oil companies or, in particular, producers of shale oil, which is not profitable at below $50 per barrel.
Complicating the picture have been clashing political factors: President Trump effectively giving a pass to Saudi Crown Prince Muhammad bin Salman regarding the murder of dissident journalist Jamal Khashoggi because the U.S.-Saudi partnership is so important, and then the extraordinary high-five caught on video between MbS, as Saudi Arabia’s effective leader is known, and President Vladimir Putin at the Group of 20 summit in Buenos Aires last weekend. Who has the key special relationship, Washington or Moscow?
The White House position was further undermined yesterday when senior senators appeared to conclude after a briefing by CIA chief Gina Haspel that MbS’s culpability in the demise of Khashoggi was as great as many have feared.
The key agenda item for OPEC oil ministers is how to reach agreement on cutting back production so that the price is high enough to support their various domestic budget needs. In their vocabulary, this is market stabilization. In ours, it means higher prices at the pumps; hence, President Trump’s running tweet attacks on the cartel.
But the Thursday meeting of the mainly Arab oil ministers — plus Nigeria, Venezuela, Iran and a couple of African states — will be undermined by another meeting on Friday that will include non-OPEC producers, of which Russia is the most significant. Several OPEC members think that Saudi Arabia and Russia are going to stitch up a deal to their mutual benefit, leaving the rest of them out in the cold.
The Russian and Saudi oil ministers, Alexander Novak and Khalid al-Falih, have a policy “romance,” according to an unnamed official quoted by the Wall Street Journal this morning. What with the MbS-Putin “bromance” as well, the United States appears to be a mere bystander.
Perhaps the long-term trends still look good for America: the Big Read page in yesterday’s Financial Times was headlined, “Opec: why Trump has Saudi Arabia over a barrel.”
Could the combination of this week’s activities and the apparent inevitability of shale oil’s increasing role lead to the end of OPEC? Quite possibly. The week started by Qatar announcing it was withdrawing from the cartel as of Jan. 1, 2019. There are plausible economic reasons for doing this. Qatar produces a relatively small amount of oil but is a huge producer and exporter of (much cleaner) natural gas. Developing that comparative advantage is what it should concentrate on.
But Qatar also is at diplomatic odds with Saudi Arabia, which has been leading a trade blockade of Qatar since mid-2017, alleging a litany of grievances and essentially accusing Doha of being a bad neighbor. Withdrawing from OPEC was widely interpreted as Doha’s thumbing its nose at Riyadh. However, to add to the confusion, King Salman, still the Saudi leader at least in name, yesterday invited his Qatari counterpart Emir Tamim to the summit of the largely moribund Gulf Cooperation Council scheduled to take place in Riyadh on Dec. 9.
My bet is that Tamim won’t go and instead will send a senior minister. But who knows? These days, a mythical political equivalent of the Dow Jones index is fluctuating widely as well.