Is OPEC Dying?

Once, the meetings of the oil-exporting countries' ministers (OPEC) in Vienna were among the most newsworthy economic events in the world. Today, those meetings often appear on the last pages of international media, typically with headlines stating, 'Once again, OPEC failed to reach an agreement on member production ceilings.' As expected, the 169th OPEC ministerial meeting held on June 3 in Vienna did not revive the organization from its lethargy. This time, OPEC oil ministers arrived in the Austrian capital surrounded by numerous advisors, filling many suites in the city's most luxurious hotels, but their costly trip resulted only in the agreement to appoint a Nigerian Secretary-General to replace a Libyan one whose term ended four years ago, yet retained his position due to internal divisions among the members. This change did not generate excitement, simply because the OPEC Secretary-General is a ceremonial position. In other words, OPEC once again settled for ceremonial matters in its latest meeting but remained unable to influence global oil price fluctuations. It can be said with more certainty than ever that OPEC's authority has significantly diminished, partly due to the major transformation the global energy market is undergoing, with its players rapidly changing. Recent international developments indicate that the history of oil is entering a new phase after two consecutive periods lasting approximately eighty years: 1) The era of the 'Seven Sisters': During the first period, which lasted until 1973, seven major Anglo-American oil companies known as the 'Seven Sisters' (Exxon, Mobil, Chevron, Texaco, Gulf Oil, Royal Dutch Shell, and British Petroleum) dominated the global oil market. These seven oil giants divided oil regions and markets among themselves in 1928 under 'Achnacarry Agreements' and significantly influenced the supply, demand, and price of this strategically important commodity over a relatively long period. Even the waves of nationalization of the oil industry in several producing countries, particularly from 1950 to 1970, did not significantly reduce the influence of these powerful companies. 2) The era of OPEC: After 1973, a new player named the 'Organization of the Petroleum Exporting Countries' (OPEC) emerged in the global energy arena. OPEC was established in 1960 by Iran, Saudi Arabia, Iraq, Venezuela, and Kuwait with the aim of enabling its members to collectively reclaim their rights from powerful Western companies and influence oil prices in favor of exporters. However, this event was not considered significant, and OPEC remained relatively unknown for about thirteen years. The fourth Arab-Israeli war in 1973 brought OPEC out of obscurity. Taking advantage of this opportunity, the organization members resorted to an oil embargo against powers they deemed the main supporters of Israel. This initiative led to a fourfold increase in oil prices, an event referred to in global economic literature as the 'first oil shock.' Following this event, OPEC, acting as an oil cartel, was able to influence oil supply and consequently its price in the market by setting 'production ceilings' for its members and determining quotas for them. OPEC was not always successful in this influence, but it was still regarded as a significant weight. 3) Towards a 'post-OPEC' era?: Influenced by recent developments in the global energy market and internal changes within OPEC, it seems that this organization has been severely weakened and no longer plays a significant role in the ups and downs of oil prices. Previously, OPEC could influence oil supply as a 'cartel' and raise prices by reducing its members' 'production ceilings.' Currently, with significant technological advancements, the number of players in the oil sector has dramatically increased. Exploitation of oil resources in the deep waters of the North Sea, as well as the coasts of Brazil and even polar regions, is on the rise. Oil extraction from Canada's tar sands is also increasing. Unconventional oil production (shale) in the U.S. (and soon in other regions) is a very important event, especially as significant advancements in this area can noticeably lower production costs. Concurrently with these events, investment in renewable energy is surging. In 2015 alone, investment in solar and wind energy reached $257 billion, with production capacity in this sector increasing by about nine percent. Although the share of fossil energy (coal, gas, and oil) in global energy production still accounts for about seventy-eight percent, investment and technology in this field are advancing rapidly, and given the multitude of environmental concerns, especially regarding global warming, a phenomenon known as 'energy transition' (reducing fossil and nuclear energies in favor of clean energies) is one of the most significant trends of the twenty-first century. Considering all these factors, it seems unlikely that OPEC will regain its lost authority. This does not mean that oil prices will no longer rise. It means that oil price fluctuations will now be influenced more by fundamental market data, particularly supply and demand in a non-monopolistic environment, rather than being pressured by 'cartels' like the 'Seven Sisters' or OPEC. The 'liberation' of the oil market from the constraints of 'cartels' seems highly probable under current conditions. Internal conflicts within OPEC have also reached a new peak and severely threaten its existence. For about thirty-five years, Saudi Arabia has seized a large portion of the market share of Iran and Iraq, capitalizing on their incapacitation, and based on its vast production capacity, has effectively taken other OPEC members hostage. Currently, both Iraq and Iran are openly demanding their shares, while Saudi Arabia, addicted to producing over ten million barrels per day, is unwilling to compromise. Given this internal war among its most significant members in terms of reserves and production capacity, how can OPEC maintain its original role as a defender of exporters' interests? OPEC has also lost its credibility among developing countries. In the 1970s, following the first 'oil shock,' this organization fought against industrial powers in the name of defending the interests of the 'Third World' and received support from other poor countries. Today, the 'Third World' is fragmented, and new industrial powers have emerged from within it, from China and South Korea to Brazil, which have significantly outpaced OPEC member countries. These new powers are primarily oil importers and therefore desire to keep prices low. In contrast, OPEC is mainly composed of countries that have nothing to survive on but oil and plunge into economic difficulties with falling oil prices. Poor countries that lack oil naturally benefit from lower prices and thus have little affinity for OPEC. OPEC also lacks popularity among the public in its member countries. The goal of establishing OPEC was to achieve a 'fair price' for oil, and with this slogan, the organization has repeatedly succeeded in channeling more oil dollars to member countries by exerting pressure on prices. The great tragedy is the fate of these dollars. Algerians, Iranians, and Venezuelans, who are neck-deep in the whirlpool of daily life difficulties, show no interest in what happens at OPEC's headquarters. From their perspective, the existence or non-existence of this organization is the same.