Donald Trump wants to run the world economy like a personal business. If wishes were horses beggars would ride. Every week or may I dare to say every day, Trump comes up with something that defies logic. May it be bullying the EU, G7, NAFTA, Paris Climate Treaty, Iran nuclear deal, Chinese imports or even firing his staff at a whim.
Now Trump has made the biggest Faux Pas that will bite him back in his face. Remember first that no OPEC member can increase there oil output without an approval from the body itself. That is the whole purpose of OPEC. Nothing more nothing less.
Trump has just Tweeted that he called King Salman of Saudi Arabia, asked him to increase the oil output to 2 million barrels per day, and Trump says that the King has agreed. King Salman may be the king of KSA, but he is not incharge of the OPEC. No open member would every agree to an interference from the President of a country, America, that had nothing to do with the organization. This will create an absolute revolt within the members states.
As if that things were not bad enough for OPEC since the past one year where it failed to cut production and let oil slide, these new developments with KSA and IRAN bring me to think that the life of OPEC will be very short lived. It will have the toughest year since its inception 56 years ago.
The 13 member organization now will have an absolute split in views within the committees. With China, a non-OPEC entity with huge investments in the oil sector in Iran, Venezuela, an OPEC member but an Iran sympathiser based on its hatred towards America. Iraq always on the side of Iran. Russia a non OPEC largest energy producer in the world on the side of Iran because of its hatred towards America and its ongoing military operation in Syria. I think that it will become absolutely complicated to run this organization. The straits of Hormoz will be the biggest point of control for all parties and this will create further souring of ties between Iran, KSA and China.
There is a fund called OPEC Fund For International Development, which is facing severe cash crunch already and members are no longer contribution to solve its problems. And that has made OPEC the poorest organization with the richest members in the world.
The world total daily oil production is 92 million Barrels Per Day and the entire production of OPEC members is in total, 37 million barrels per day, only 40% of the world total oil production. And the 60% stakeholders outside of OPEC are not going to let OPEC dictate for them. Plus take Iran and Iraq and Venezuela out of favour from within OPEC then the OPEC producer’s total daily production will become less than 28% of the world total oil production per day.
So yes, i think that either we will see a major reshuffle in OPEC structure or the organization itself becoming an absolute NON -ENTITY.
I will take the latter part of the last line.
Author: Mir Mohammad AliKhan