Rashid Husain Syed is a journalist, energy analyst and consultant based in Toronto. For almost 25 years, he served as vice-president of a leading Saudi trading and consulting house.
As oil ministers prepare to sit down in Vienna this week to discuss energy markets, there is a stream of speculation that the Organization of Petroleum Exporting Countries (OPEC) is essentially dead. It has become toothless and fractured, devoid of firepower.
Oil today has once more become a strategic political tool rather than a product to be sold, and many see this as contributing to the cartel's inability to control and direct global energy markets like it did.
"OPEC is in a difficult situation," Amir Hossein Zamaninia, Iran's deputy oil minister for international affairs, told The Wall Street Journal. Faced with major challenges, and with politics assuming centre stage, OPEC's very existence as a viable force is under threat.
The U.S. fracking boom, Iran's galloping return to world markets, emerging frontiers and global urgency about carbon emissions have brought about monumental changes in the global energy landscape. Consequently, the energy world has undergone a metamorphosis.
There are many manifestations of this changing topography. There is plenty of oil – from shale to the oil sands and the Arctic to Iran. Market sentiments have switched from peak oil to peak demand.
With new energy frontiers making their presence felt and efficiency taking centre stage, the issue of stranded assets is also beginning to haunt producers. The continuing market-share battle is a firm indication of this. In the altered scenario, most producers want to cling to their market share. April's fiasco in Doha was also a clear reminder that all is not well within the organization. Cohesion is definitely missing.
For decades, the cartel has controlled the market by regulating supply, endeavouring to keep prices at a "fair" level. However, with the market-share battle raging, major OPEC stakeholders seem less keen on that. Other considerations have taken over. It's become a free-for-all, with everyone continuing to produce as much as possible. The bitter battle for market share, especially between Saudi Arabia and Iran, also indicates that things may not be returning to normal any time soon. Despite the need for ever-more petrodollars, most producers seem content to push as much oil into the market as they can.
As such, targeting and controlling market prices is no longer the prime objective. "We don't care about oil prices – $30 or $70, they are all the same to us," Saudi Deputy Crown Prince Mohammed bin Salman asserted in an April interview in Riyadh. "We have our own programs that don't need high oil prices."
This outlook appears in stark difference to the recent past, as does the role of OPEC in these changed circumstances. The organization's viability as a strong, cohesive force in the energy world is no longer the most pressing objective in Riyadh or even Tehran. Saudi Arabia's recently unveiled "Vision 2030" is a clear indication of the changing mood. It demonstrates that Riyadh now realizes that the oil era is slowly and gradually passing, and that oil cannot propel the oil kingdom into the next phase of development and prosperity. Hence it is now targeting revenue sources other than oil.
Its strategy to further its geopolitical objectives by using oil as a tool also indicates that Riyadh is no longer fully interested in keeping OPEC alive. And Iran is insistent on recapturing its market share, come what may.
The continuing climate change debate is another factor. The emphasis on weaning the world away from fossil fuels is beginning to hurt. Consumption growth is slowing and efficiency is the new mantra. Major oil-consuming countries, including China, are embarking on policies to reduce crude consumption and carbon emissions. Meanwhile, electric cars may not be too far off. Some say they could be just around the corner, especially if oil prices trend higher again.
Author and energy consultant Daniel Yergin definitely had a point when he told the Financial Times recently that "The era of OPEC as a decisive force in the world economy is over." The writing is very much on the wall.