Putin preempts Vienna meeting by announcing accord with Saudis
The trouble with bringing new people into your club, especially if they are bigger than you, is that they might just take over. OPEC is learning that lesson.
Three years ago, suffering a collapse in oil prices, OPEC sought outside help to cut oil supplies in order to drain excess inventories that had built up over the previous two years. It eventually succeeded in securing the help of a group of non-OPEC countries.
Most of them added little to this new OPEC+ club. The output cuts they offered were, in many cases, going to happen anyway, as a result of natural declines through a lack of investment or dwindling reserves.
The one big exception was Russia. President Vladimir Putin — and make no mistake, the decision was his, not the oil minister’s — pledged that Russian oil companies would reduce output by 300,000 barrels a day.
Russia’s participation did more than add real barrels to the output curbs. It also brought the country that was then the world’s largest oil producer into the supply-management club.
But there was a price to pay and it was one that OPEC members might have foreseen.
Russia was never going to accept being told how much oil it could produce by outsiders. That simply didn’t fit with Putin’s view of his country’s place in the world.
Move on three years and Russia’s takeover of OPEC is almost complete. Output decisions are no longer negotiated between the group’s oil ministers in suites in Vienna’s luxury hotels and announced to the waiting world from the OPEC headquarters around the corner.
They’re thrashed out in advance by Putin and Saudi Arabia’s crown prince.
Putin’s announcement from Osaka on Saturday that he and Prince Mohammed Bin Salman had agreed to extend the current output deal to at least the end of the year has made the forthcoming gathering in Vienna almost redundant.
True, Putin introduced some uncertainty about whether it will be prolonged for six months or nine, leaving ministers something to talk about on Monday and Tuesday, but that’s largely irrelevant. OPEC’s statute requires its members to meet twice a year, so another gathering before the end of December is inevitable.
By then, the forecasts of oil supply and demand in 2020 will have changed from the current expectations. U.S. sanctions, trade wars, American shale-oil growth and an uncertain outlook for the global economy make that inescapable.
Whatever is agreed now will have to be revisited and revised at the next meeting. So any extension longer than six months is meaningless.
When OPEC met in December, it was unable to agree on the details of a new production accord until Russian Energy Minister Alexander Novak brokered a deal between his Saudi and Iranian counterparts from the office of OPEC’s secretary-general.
Six months later, Russia and Saudi Arabia have settled the OPEC+ output accord half a world away two days before the ministers meet. No wonder the Russians wanted to delay the OPEC and OPEC+ meetings until after the G-20. Their takeover of OPEC’s decision-making process is a done deal.