What is OPEC?
Organization of Petroleum Exporting Countries (OPEC), is an intergovernmental organization of 14 nations, founded in September 1960 in Baghdad and is headquartered in Vienna (Austria) since 1965. The purpose is to coordinate and unify petroleum policies of its member countries in order to ensure stabilization of oil markets. OPEC was replaced by OPEC + which included Russia in order to streamline the trade market.
Subdued Markets due to Corona Pandemic and its Impact on Oil
Global markets saw its biggest fall in March 2020 due to the spread of corona epidemic. Closure of industries in Asian giants China and South Korea, resulted in huge impact on global travel, blocked supply chains resulting in huge glut in oil market and fall in global oil prices to as low as 36 dollars a barrel. At a meeting of OPEC+ in Vienna the cartel of oil producing countries led by Riyadh proposed the OPEC+ should reduce the production by about one million barrels per day in order to stabilize the prices. Russia had benefitted from the deal not only in terms of oil revenues but also in foreign policy by improving relations with Saudi Crown Prince Mohamed bin Salman. This in turn gave Russia greater influence in countries like Syria, Lebanon and Libya.
Russian Response and its Aftermath
Moscow argued that the production should not be reduced till full impact of COVID-19 is assessed in greater detail, since any attempt to reduce production would favorably benefit American shale gas industry, which had raised its production levels that were higher than both Saudi Arabia and Russia’s. As a counter, Saudi Arabia and United Arab Emirates decided to raise oil output by 3.6 million barrels per day adding chaos to an already over flooded market. This signals an end, for the time being, to the OPEC partnership with Russia. It is felt, that by walking out of the OPEC+ arrangement, Russia is trying drive the cost of shale gas for American companies below the breakeven point and punish the Americans for messing up with ‘Nord Stream-2’, a Russian gas pipeline to Germany, whose production had been stalled due to US sanctions.