In spite of free rider problems, the group has had major impacts on oil markets in the past, the most prominent being the 1973 oil embargo and subsequent energy crisis when the embargo increased oil prices by 300%. Yet, today’s OPEC is a very different beast than it used to be.
After the oil embargo made energy security a major talking point, many countries sought out substitutes for OPEC oil, substitutes like the shale-oil, the boom in which was largely responsible for the recent glut. Add in the Iranian Revolution in 1979 which installed a theocracy led by a sect of Islam hostile to Saudi Arabia’s and diametrically opposed to its regional ambitions for the following decades, and OPEC’s waning leverage over energy is not surprising.
40 years ago OPEC’s crude oil output made up around half of the global supply; however, today it output accounts for only about one-third of total output. Since the group’s power is directly tied to the scarcity of its product and its own cohesive coordination, the weakening of both can only mean it has less market power than it used to.
In Vienna, the group tried to show a shred of unity. Saudi Arabia’s new oil minister, Al-Falih, took particular care to avoid conflict at what was his first major meeting, while pointing to rebounding oil prices as evidence that Saudi Arabia’s strategy of inaction was justified.
The apparent balancing of the market helped relieve tensions in Vienna. Favoring diplomacy over further embarrassing conflicts, the group chose Mohammed Barkindo of Nigeria as its new secretary-general as Al-Falih attempted to strike a tone of reconciliation.
Under the its new economic plan, Vision 2030, Saudi Arabia seems to be moving away from its place as OPEC’s de facto leader. The plan calls for less reliance on oil revenue, as well as the partial privatization of Saudi Arabian Oil Co. will make the nation the only member of OPEC without full ownership of its national oil company. It’s hard to say how much OPEC’s goals will matter when the company is partially beholden to shareholders with very different incentives.
Over the past few years, under al-Naimi’s leadership, Saudi Arabia resolved that OPEC wouldn’t cut output and instead pump as much as its members wanted to defend sales against higher-cost crude. That resolution essentially meant going against the reason OPEC was founded.
“The death of OPEC has been long foretold, but it looks like the Saudi 2030 Vision is really the obituary notice,” said Citigroup’s Kleinman. “The Saudi Aramco IPO, and the presumption that there’s going to be a much higher degree of autonomy within Saudi Arabia — there’s no real role for OPEC.”