It was a time when Saudi Arabia could control the future or at least, the future of world economics.
The people would listen to Sheikh Yamani as if he were a legendary Saudi Oil Minister, or a kind of Pythia from Delphi.
He could, with a flick of his eyebrow, send oil prices soaring and plummeting. And along with them the fortunes for the advanced economies of the West.
No more. OPEC, which was led by Saudi Arabia, has lost much of its power and discipline. is now a shambles, judging from the recent events.
It is not a good idea to ostracize the media. This almost always signals a declining organisation.
Saudi Arabia’s current Energy Minister, Prince Abdulaziz Bin Salman, has been reported to be extremely unhappy that the media did not devote enough column inches to his opinion that the oil prices should be higher.
Perhaps the annoying hacks will now learn their lesson, but not.
It is almost unheard-of that Saudi Arabia would cut production alone, even though at least one other member of Opec was about to increase it. It is also virtually unheard-of for Saudi Arabia, alone among Opec members, to cut production while another member is about to increase it. And for this to have no effect at all on oil prices.
The Saudi Arabian government is taking a big risk, as the price of oil must rise significantly to offset the impact the production cut has had on Saudi Arabia’s revenues.
The plans to build castles on the sand and similar vainglorious projects are extremely ambitious and costly. Saudi Arabia needs every penny it can get.
Everyone is left guessing about the kingdom’s decision to cut production.
This is the most commonly held opinion. Saudi Arabia, aware that oil will eventually decline due to the global response against climate change, has decided to maximize the profits while they can.
The world economy can ignore the higher price, the better. Saudi Arabia’s actions are a side-effect of its self-interest, which is why it doesn’t care if other countries, like Putin’s Russia, benefit from high oil prices.
The worse the oil prices, the more depressing the effect on the Western economies. This is their watch.
Opec’s role as a stabilizing influence on the world economy and adjusting production in order to maintain prices at a constant level has passed its prime. Now, it is everyone for themselves.
As I said, much of the media was banned.
I am not sure that the narrative above is accurate. I wouldn’t place too much stock in the headline-grabbing news that the International Energy Agency has reported, stating that new investments on fossil fuels are now outpacing global investment in clean technologies.
It has been this way for some time, but the new investment in coal, oil and gas has continued apace despite these disincentives, and it is now near pre-pandemic level.
Saudi Arabia, on the other hand, has been of the opinion that has much more life than people think. In other words, net zero is still many decades away, and there are many more profitable decades in fossil fuels ahead.
If this is your outlook, then you should not cut production but rather try to maintain your market position as much as possible by keeping your costs as low as possible.
It makes sense to reduce production to maintain current prices if, on the contrary, the global economy is slowing. There are many signs that this is happening, especially in China where economic news is becoming increasingly grim.
That’s the best way to interpret what’s happening. It’s another thing whether it works or not.
The geopolitics of the oil industry has changed dramatically in the last decade. Five years ago, the brutal killing of Jamal Khashoggi in Istanbul by a group of Saudi agents was a turning point. But Saudi Arabia’s pivot from the US to China began years earlier with the American shale boom.
The US is no longer dependent on Middle Eastern energy for its affordable price. Saudi Arabia is now looking to Asia for energy.
Saudi Arabia’s refusal of increasing production to wean the West off Russian supplies has certainly added to the impression that it was deliberately unhelpful.
Saudi Arabia appeared to reject the West in geopolitical terms and side with China and Russia.
This is not just a despotic act. It’s mainly about a deeper snub, that America no longer needs Saudi Arabia and feels free to banish the kingdom from the Western club as punishment for the Khashoggi scandal.
Saudi Arabia, once courted by all parties, has now been left in the cold.
Donald Trump, Joe Biden’s predecessor, was, of course, more forgiving in his response to the murder of Khashoggi. Trump, like Boris Johnson, developed a close relationship with Mohammed bin Salman, the Saudi crown prince.
As a reward, lucrative arms contracts should have been awarded. All of that went to waste with the ice cold relations which have prevailed ever since Biden was elected president. Recently, the US has made a halfhearted effort to rebuild bridges. However, it’s had little success.
We’ve done what we always do: a half-hearted denunciation combined with continued co-operation for market access and security. Saudi Arabia is still a major export market for Britain.
Saudi Arabia is likely to remain a major player in the global economy for many years to come. However, its claim that it has a stabilising effect on oil markets no longer holds true.
Saudi Arabia’s modernisation has been impressive in the last few years, but it is no longer the power it once was, individually or as part of Opec.