World News: OPEC’s Post Covid Global Squeeze

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Category: World News - Europe

Published on Tuesday, 06 July 2021 13:12

Written by Olivier Longhi

The rising oil prices bring worry to industrialized countries concerned about slowing the predicted sustained post-Covid global growth. But this surge in prices also highlights the role of OPEC, an actor and victim of the rise of black gold.

From a geopolitical and geostrategic point of view, the dissensions that are tearing apart the Organization of the Petroleum Producing Countries (OPEC) are rich in lessons on the state of relations between the members of the oil cartel but also in the expectations nourished by the countries that are consumers and not producers of black gold.

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To date, there is only one concern haunting them: that a surge in prices will jeopardize the expected global economic recovery. Because an increase in the price of a barrel (Brent or WTI) could mobilize, more than reason or more than expected the purchasing power of consumers via carbon fuels still massively used.

And to see the emergence of new tensions between producer and consumer countries is not excluded, as dependence on black gold is still very high throughout the world, which is not without questioning the progress of environmental policies and the energy transition on a global scale.

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However, these tensions on oil, which had eased since the beginning of the pandemic, or even before, bring to the fore the existing divergences between the producing countries, some advocating an increase in production, others for the status quo of high prices linked to a restriction or maintenance of current production. The two orientations have opposing advantages that the supporters of one or the other have clearly understood.

Profits and Actor

The former generates long-term profits, with the price of a barrel at a price considered acceptable ($50 to $60), thus ensuring that the industrialized countries can maintain their economic growth without being handicapped by an excessive oil bill.

The second, which is considered more devious, leads to high and rapid profits for the producing countries, which are attracted by the idea of financing themselves on the energy market, but presents the risk of hindering world growth because of an excessively heavy energy bill, which may ultimately turn against the producing countries, as demand weakens as a result of the tariffs applied.

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This is an observation that could also benefit the consumer countries because these long-standing and deep-seated dissensions within the oil cartel have prevented, and still prevent, OPEC from being the all-powerful energy player that it could have become, even if it already has many trappings. Dependent on world demand and growth, in competition with shale oil production in the United States, oil sands development in Canada (Province of Alberta), or investment deficiencies that penalize its profitability, oil production is perhaps now more than ever hostage to industrialized economies.

Repellent Effect and Transition

From China to the United States via Europe, a barrel with too high a price would initially have a repellent effect and then a politically devastating effect because OPEC would be accused of undermining the beginnings of the growth of which it would ultimately fall victim.

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While the pandemic has strengthened its strategic weight, it has also highlighted these weaknesses, which are themselves fueled by the shortcomings of producing countries that are largely dependent on oil wealth. This observation could lead OPEC to reflect on its role and place in the post-covid global economy and increasingly seduced by renewable energies.

Rethinking OPEC's operating model, moving it from being an insurance provider of producer countries to being an actor likely to support the global energy transition through sustainable initiative financing, cannot be ruled out.

Bio: Olivier Longhi an opinion columnist for Haute-Lifestyle.com, has extensive experience in European history. A seasoned journalist with fifteen years of experience, he is currently professor of history and geography in the Toulouse region of France. He has held a variety of publishing positions, including Head of Agency and Chief of Publishing. A journalist, recognized blogger, editor, and editorial project manager, he has trained and managed editorial teams, worked as a journalist for various local radio stations, a press and publishing consultant, and a communications consultant.