OPEC was formed in 1960 by the founding members of Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. For a brief period, the oil cartel became the dominant force behind world oil prices and a key geopolitical power agent, with its members controlling nearly half of world oil production and more than three quarters of world oil reserves. When American oil production entered a period of seemingly inexorable decline after its peak in 1970, Washington wish to strengthen energy security and create a bulwark against communist expansion in the Middle East, Saudi Arabia became a key ally of the US. OPEC, at the height of its power, in the 1970s, flexed its muscles by reducing oil production causing an upward spiral in prices that led to two oil price shocks that led to global recessions. Since then, OPEC’s power has steadily deteriorated, with a decline that has accelerated over the past two decades due to the rapid growth of non-OPEC oil production, especially in the United States. United and Brazil.
The rise of U.S. shale oil caused land production to skyrocket rapidly after nearly three decades of decline. U.S. crude oil imports from the Middle East plummeted and Congress lifted a four-decade restriction on U.S. oil exports. Even Riyadh’s 2014 plan recover market share and destroy the U.S. shale oil industry by opening ears and significantly increasing production, causing crude oil prices to fall sharply, failed. In 2018, the US passed Saudi Arabia will become the world’s largest oil producer and pumps 10.96 million barrels of oil equivalent daily. Since then, production, led by the shale oil industry, has grown with the collapse of the March 2020 oil price that has had little sustained material impact on the U.S. shale oil industry. . The U.S. Energy Information Administration calculates the U.S. 2020 oil production an average of 11.3 million barrels of crude oil per day, which, although decreasing by 7% compared to 2019, is still 29% higher than the 8.8 million barrels produced daily during 2014 during the peak of the rise of the shale. The EIA predicts U.S. oil production in 2021 to decline 2% year-on-year to 11.1 million barrels a day, 26% more than in 2014. The resistance of the shale oil industry in the United States it can be attributed to the improvement in technology and expertise that, along with the growth in operational efficiency has led to a steady fall in unequal prices. According to the Dallas Federal Reserve, new shale oil wells have an average equilibrium price $ 46 to $ 52 per barrel compared around $ 77 a barrel in 2014. There is every indication that the U.S. shale could hit energy markets again during 2021 and continue pumping crude at a furious pace, regardless of lower prices. U.S. foreign policy is also eroding OPEC’s geopolitical power and its ability to manipulate oil prices. Sanctions against Iran and Venezuela prevent oil-rich nations from expanding oil production or strengthening their influence within the cartel. It also rewards Saudi Arabia by delaying Iran’s economic growth, thus reducing Tehran’s influence in the Middle East and consolidating Riyadh’s authority as OPEC’s main producer. The White House petro-diplomacy under President Trump, it highlights the diminishing influence of OPEC and the ability to manipulate oil prices. During 2018, when Brent had rallied to more than $ 70 and flirted with $ 80 a barrel, threatening U.S. economic growth, Trump heavy exerting pressure on OPEC to boost production while keeping prices low. Then, in early April 2020, after the price of oil collapsed due to the COVID-19 pandemic and the approaching price war between Saudi Arabia and Russia, which threatened the survival of the U.S. shale oil industry, Trump intervened again. He contacted Riyadh and threatened the withdrawal of American troops, except for the production of the Saudis to boost crude oil prices.
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It is not just the rapid growth of U.S. oil production over the past decade that is jeopardizing OPEC’s control over oil prices and geopolitical power. Saudi Arabia’s growing dependence on US support for its war against Iran over control of the Middle East and the leadership of the Muslim world, as well as OPEC, has weakened independence and power. geopolitics of the cartel. Riyadh benefits greatly from Washington’s foreign policy, particularly the severe economic and diplomatic sanctions imposed on OPEC members Iran and Venezuela. By denying both countries access to world energy markets, they cannot grow their oil production, restricting its influence and giving Saudi Arabia a freer hand with the establishment of the cartel policy. This does not guarantee either Venezuela nor can Iran in particular prosper thanks to the increase in economic wealth derived from increased oil production severe pressure both pariah regimes, while strengthening the position of Saudi Arabia. A stronger, but somewhat less independent, Saudi Arabia magnifies the effect of U.S. regional policy while giving Washington more reliable power to influence regional affairs and maintain control over the vast oil resources of the United States. the Middle East. This also undermines Moscow’s ability to expand its regional influence through its alliance of convenience with Tehran, which supported the two countries under President Bashar al-Assad’s dictatorial regime during the bloody Syrian civil war. These developments have given Washington a greater view of OPEC oil production and, ultimately, prices. This is underlined by Riyadh decision to cut one million barrels a day of Saudi Arabia’s oil production to raise prices and absorb the rise in Russian production. Not only has Riyadh boosted oil prices at a critical time, especially for the U.S. shale, but it indicates that the Saudi government wants to favor the Biden administration.
For these reasons, President Biden must carefully consider whether incorporation into the Joint Comprehensive Action Plan (JCPOA) and the removal of all U.S. sanctions is the right measure, especially with Tehran. uranium enrichment breaching the deal. This is particularly the case when one considers the recent belligerence and aggression of Iran. The Guard Corps of the Islamic Revolution recently confiscated a South Korean oil tanker in the Strait of Hormuz, while Tehran is making ratchets support by the dictatorial socialist regime of the Venezuelan president Nicholas Maduro in spite of the massiveness humanitarian crisis his government has been unleashed.
By Matthew Smith for Oilprice.com
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