Thursday, 22 August, 2019

Saudis Account for Oil Market Panic and OPEC Dwindling

By: Abdolreza Ghofrani

Just a few days back OPEC ministerial meeting finished its one day working day in Vienna with no concrete result. This failure, as it was pretty predictable, was due to Iran and Saudi Arabia disputes on production ceilings of the production of the organization, and particularly their own quotas. They also, just like previous sessions, could not reach a consensus on appointment over a new OPEC secretary general. This time around unwise and immature Saudis’ policies did cause the failure of the session.

Everybody is now quite aware, it was just a few years ago that Saudis with having no economic justification, that now we need not to repeat , as well as without considering the global crude consumptions and demands, increased oddly their productions ,and violating the prevailing principles and standards of OPEC.

At the time, no particular development in a certain country and /or the global economy had occurred that did require this unjustified oil production hike. By this unexpected and surprise action, Saudis shocked all economic and petroleum circles of the world and caused an unnecessary global crude glut. Regrettably, this reckless and ill measured policy taken by inexperienced Saudis officials not only instigated the sharp decrease of oils prices, or as put it by oil experts caused the free fall of crude prices, but deprived the oil exporting countries of their desirable and fair and eligible incomes. Moreover this action visibly encroached the prevailing principles of this powerful economic organization.

BY this action, Saudis not only dwindled OPEC strength, for which its member states have made painstaking attempts for decades , but have not lived up to organization’s inspirations and principles. The aspirations of this economic organization constituent, Iran, Venezuela and Saudi Arabia, or in better words the basis of OPEC has always been the planning for oil production. It means that OPEC regularly has always studied and predicted the propensity and demand of global oil consumptions, and planning the oil production and eventually quotas of all member countries. The second responsibility of the organization has always been (and still is) the stability of the crude prices to serve the interests of both the producers as well as the consumers.

In line with those two principles, from the outset, OPEC had decided to cooperate between the organization members and the non OPEC producing countries in planning the oil markets and the petroleum prices. Now we see that Saudis have completely disregarded and violated all these principles.

Taking a look on the irrational and immature actions on the part of Saudis thoroughly reveals that only Saudis are responsible for this untidy global oil markets. Now with this chaotic oil market that is the results of Saudis’ actions, how on earth they expect others, including Iran, for finding solutions or making sacrifices at the cost of their national interests?!

Ironically, The Saudis now have entangled with a trap they have seemingly made for others. At present, Saudis, because of their colossal military expenses in Yemen as well as for other destructive and adventurous operations in some other regions, are challenging with huge financial limitations. For this they heavily have been depended on their oil incomes. Actually now politically they have been thoroughly confused. This wonderful Iranian old saying is now quite appropriate for Saudis that” no way out from the problem they themselves have created.” Having said all this, in the present circumstances it is the Saudis and merely the Saudis that have the key solution .That is to cut down their oil production given the OPEC planning system and policies and albeit on the basis of global oil consumptions.

Saudis should not expect either Iran or any other OPEC member countries to cut down their oil production because it is not eligible and nor in line with OPEC prevailing principles. Because the present messy oil markets situation is the result of their untimely irrational and immature policies that not only caused the oil prices be cut down sharply but deprived other member states, among them Iran , of their eligible oil incomes. Besides Iran will never ever do this.

Moreover, by their own oil production cut down, Saudis may help the oil markets and the crude price to recuperate and preventing the organization from dwindling and probable collapse.

Last but not the least, OPEC over the past six decades has been always the best epicenter for making the fair and balanced policies for streamlining the global oil markets. Weakening or probable downfall of this organization will certainly expose the global oil markets with uncertainties that do not serve the interests of anyone. Unless Saudis take an imminent and timely action, the doom future oil markets and probable collapse of OPEC are the responsibility that remains absolutely with Saudis.

Abdolreza Ghofrani is a senior international expert. The author has made so far several contributions on oil markets and translated a number of books on OPEC and petroleum         

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