Opec should reassert its oil influence

Since the world financial crisis struck out last fall, the Organisation of Petroleum Exporting Countries (Opec) appeared to have become less powerless. It could not do much to stop, or at least slow, the downturn in oil prices.

Opec's dwindling influence has, in fact, become apparent for sometime now. Last year, when oil prices peaked, approaching the $150 (Dh550.89) per barrel mark, Opec appeared to have little power to moderate the prices. Even Opec leader, Saudi Arabia, could do absolutely nothing to affect the prices, notwithstanding its spare production capacity, accounting for 2.5 million barrels a day. At the time, the increase in oil prices was not linked to a shortage in the supplies; but the direct effect of the stand-off between Iran and the US.

Indeed, the US does not depend solely on Middle Eastern oil, as it imports much of its energy needs from other countries such as Canada, Mexico, Venezuela and Nigeria. Yet, given the huge share of Arabian oil in the world economy, the disruption of oil supplies from the Gulf will drive prices to unprecedented high level affecting the whole market.

Historically, peaks in oil prices have been the results of political crises in the Middle East: the 1973 Arab-Israeli War, the 1979 Islamic Revolution in Iran, the Iran-Iraq War, the Iraqi invasion of Kuwait, and the 2003 US invasion of Iraq. In most of these cases, Opec - or key members of Opec - was able to increase production and hence moderate the prices. Opec could not do that last year.

Over the past few decades, Opec members have done little to increase their production capacity, withering away their ability to control the oil market. Instead of using their oil exports, which nearly doubled in value between 2003 and 2008, to develop their oil industry, Opec members have used most of their revenue to repay government debts and buy Western weapons. As a result of inadequate investment in the oil sector, Russia has at times replaced Saudi Arabia as the biggest oil producer.

While Opec production capacity has dwindled, or at least stagnated, oil consumption increased world-wide. The 2007-2008 increase in oil prices were partly attributed to the rising consumption of countries such as India and China, which in turn reflects their remarkable economic growth.

Since September 2008, oil prices fell sharply as a result of the world economic crisis. Opec tried to lead a concerted effort to stop the plummeting prices; but to no avail. The US and the industrialised nations in general did not hide their pleasure to see Opec's influence dwindling.

Since the 1973 Arab oil embargo the US has been trying to loosen Opec's stranglehold on petroleum prices. Little success has been achieved in this area. For the US, oil is not scarce, but most of it is controlled by Opec. Hence, the health of the US economy has always been regarded as being hostage to Opec's tight control of the oil market.

Washington's rising interests in Africa's oil output is seen as an attempt to counterbalance Opec's influence in the oil market. Since 2005, Africa became the source of 15 per cent of US oil imports. It is estimated that by 2025 Africa's share in the US oil market will rise to 25 per cent. Africa, US officials believe, can contribute to breaking Opec's hold on the oil market. To this end, the US has exerted tremendous pressure to convince Nigeria - the largest oil producer in Africa - that its interests lie with Washington not with Opec. If Lagos were to leave the oil grouping, then Washington would have won a major battle against Opec.

Indeed, Africa's share of US oil imports could by no means replace the Middle East's. Equally, it is Opec - with or without Nigeria - that can bring the American economy to its knees. For example, the three Middle Eastern oil crises - 1973, 1979 and 1990 - have cost America $7 trillion and the US economy could suffer even more if Opec members agree to counteract Washington's attempts to destroy the oil cartel. Yet, with Iraq and Afghanistan already under US influence, an alliance between African oil producers and Washington could deal a major blow to Opec's dominance and prestige in the international market.

In the coming years, Opec will have to address these issues and try to reassert its influence in the oil market. Success will depend, however, on how the origination will tackle the challenges it faces today as a result of the world's financial crisis.

Dr Marwan Al Kabalan is a lecturer in Media and International Relations at the Faculty of Political Science and Media, Damascus University, Syria.