Prices are expected to continue to rise under the latest oil hurray
As the world grapples with global warming and seeks to reduce emissions to net zero over the next three decades, oil-producing states are poised to maximize revenues from their black gold before it loses its value. market for the benefit of clean energy sources. Oil and gas prices can be expected to skyrocket around the world in the coming years, with little relief in sight unless the global economy experiences a dramatic slowdown that results in a downturn. significant oil consumption.
The Organization of the Petroleum Exporting Countries, plus Russia, are leading the way. Founded in 1960, OPEC has grown into a formidable cartel in just over a decade. It wrested control of oil supply and prices from Western international oil companies. OPEC reached its peak in the early 1970s when its 14 members broke corporate monopoly by determining the amount of oil produced and the prices corresponding to demand in the international market. Its producers in the Middle East and Venezuela have quadrupled their incomes, forming a new bloc of wealthy actors in world politics.
Since then, OPEC’s fortunes have been affected by internal geopolitical and ideological divisions, rivalries and conflicts as well as supply and demand factors. The price of crude oil fluctuated from US $ 20 a barrel in the mid-1970s to some US $ 120 in the early 2010s, dropping dramatically in the wake of the savagery of the Covid-19 pandemic.
However, despite its internal differences, three factors more than any other are now at work to strengthen OPEC’s cartel position and exert upward pressure on oil prices. The first is the economic rebound in industrialized countries which have decided to deal with Covid-19 and its different strains.
The second is the evolution of the global geostrategic situation in which Russia, not a member of OPEC, has found it financially and politically expedient to coordinate with OPEC and more particularly with its largest producer, Saudi Arabia, which has the capacity to influence OPEC policy and the world market. by increasing or decreasing its production.
The third factor is climate change and the accelerated pursuit of renewable and clean energy sources, as embodied in last month’s Glasgow climate summit declaration and before that in the largely defunct 2015 Paris Agreement.
Of the three, the global economic recovery should logically not lead to the dramatic increases in oil prices, which consumers are experiencing today in Australia and elsewhere. The recovery has not reached pre-pandemic levels and, even if it does, it cannot justify the price spike. The only time in the past decade that there has been a dramatic rise in prices was in 2012, reaching US $ 110 a barrel, but the global economy was also very robust at the time. Although the price declined over the following years, in 2018 it hovered around US $ 80 per barrel. Yet motorists still haven’t paid the Bowser as much as they pay today.
The answer seems to be rooted in the other two factors. Recently, Saudi Arabia and Russia have found it appropriate to have a modus vivendi not increase production to a level that could alleviate the supply and delivery difficulties caused by the effects of the pandemic. Since 2020, Riyadh and Moscow have engaged in a mutual revenue-generating and geopolitically beneficial interaction.
Saudi Arabia has been keen not only to make up for lost revenues during pandemic lockdowns and the economic downturn, but also to put Iran at a disadvantage, which has the potential to be OPEC’s second largest producer but suffers from severe US sanctions. In this context, Riyadh also remained opposed to a reinstatement of the Iranian nuclear agreement of July 2015 which could lead to a lifting of sanctions against Iran.
Sharing Saudi Arabia’s sincere desire to increase its revenue, Russia decided to use its hydrocarbon resources in a larger geopolitical game with Europe and the United States. President Vladimir Putin wants to punish the European Union and, through it, the United States for their various sanctions against the annexation of Crimea by Russia and their aggressive attitude towards Ukraine. The favorable Riyadh-Moscow interaction, which other OPEC members have also benefited from, comes at a time when all oil-producing states are worried about the consequences of the global push for clean energy sources.
They are aware that the future belongs to alternative energy sources, which prompts them to take advantage of the window of opportunity available to them to accelerate their income. These revenues will then allow them to invest in alternative energy sources so that they can remain influential players in the global post-hydrocarbon market. Saudi Arabia has already taken notable initiatives in this regard, and its oil-rich Arab allies appear to be on the same path. Russia has also moved into this space.
Gone are the days when the price of oil fell to US $ 30 a barrel, as in 2016. Climate change has injected new energy into OPEC and Russia, which should play for higher prices for the foreseeable future. This is not good news for a post-pandemic global recovery.