From time to time, US President Donald Trump threatens members of the Organization of the Petroleum Exporting Countries (Opec), especially the Gulf states, that they don’t do enough to reduce oil prices. As if Opec members have a magic wand to do so ...
It is strange these threats are made by a former businessman, who is familiar with the nature of markets, especially that surrounding supply and demand, the role of speculators, and other factors. The global oil market is extremely sensitive to geopolitical and environmental factors, not to mention the market dynamics.
As evidenced by its history, Opec played a pivotal role in striking a balance in the market and stabilising the global economy, so as to insulate it from any shocks that affect member-states. In some cases, the market gets out of control due to political and other factors, such as the October war between Arabs and Israelis in 1973, the Iran-Iraq war of the 1980s, and the Iraqi invasion of Kuwait in 1990.
Opec has had a significant role in ensuring production and price stability. To do so, it played the role of a flexible producer, which raises or reduces production according to the requirements of the market and the global economy in general.
To this day, Opec continues to play its vital role. Following Iran’s drop in oil exports in recent months due to the suspension or reduced exports to many countries because of US sanctions, some Opec countries — especially Saudi Arabia, the UAE, Kuwait and Iraq — along with Russia, which cooperates with Opec, increased production beyond the agreed production cap of 30 million barrels per day to 32 million.
Russian production increased by half a million barrels per day, which covers the Iranian oil exports, estimated at 2.5 million barrels per day, although these exports have not stopped so far.
Yet, oil prices rose to $85 a barrel, the highest since 2014, mainly due to technical factors. These include Venezuela’s production drop, hurricanes and storms, which affected some production, before falling to $81 at the beginning of this week. Make no mistake, these factors are temporary and speculation remains high, which Trump knows quite well by virtue of being a businessman.
Even in such a situation, the Opec countries in cooperation with Russia are trying to curb prices. The UAE, Saudi Arabia, Kuwait and Russia have announced an increase in production from now until the end of the year. The output of Saudi Arabia and Russia will exceed 10 million barrels, while the UAE and Kuwait will surpass 3.5 million barrels a day.
It is clear these countries are keen to maintaining prices at optimum levels and stabilising the global economy, which will compensate for the interruption of Iranian oil exports as well as shortages caused by the decline in Venezuelan production.
What does Trump want more than that? He must know that Opec countries, especially the Gulf ones, are more concerned about the stability of prices and markets, due to their economic dependence on oil exports. And any malfunction or market shocks will directly affect them.
This is why the US President should thank Opec rather than blame it, in particular the UAE, Saudi Arabia and Kuwait, for their cooperation in stabilising the global economy. Rather than issue baseless threats that are probably used as election propaganda at the expense of US strategic relations with friendly countries.
Dr Mohammad Al Asoomi is a UAE economic expert and specialist in economic and social development in the UAE and the GCC countries.