Translated material
Battle for the gate
Evgeniy Pakhomov
The outcome of the confrontation between OPEC and the United States should determine who and how will control the oil market in the coming century
The outcome of the confrontation between OPEC and the United States should determine who and how will control the oil market in the coming century
(Photo: AP )
The war is already in its second year. The struggle for oil prices in the Western press has already been dubbed the world oil war, although there are no killed or wounded on its fronts and the strategy is planned not by brave commanders, but by the heads of oil concerns and officials of various international organizations. Another battle is expected this week: the Organization of Petroleum Exporting Countries (OPEC) at its meeting must decide whether to once again increase oil production quotas to stop rising prices, as demanded by importing countries.
How widely will OPEC agree to open the valves on its wells? Almost all the world's capitals are nervously awaiting the answer to this question, but with different feelings. For Moscow (an oil exporter), high oil prices mean hope for a deficit-free budget, and for Washington (the largest importer) it means problems with voters in a presidential election year.
It all started with the Asian economic crisis of 1997-1998, when the demand for energy fell sharply, oil began to become cheaper and by the beginning of 1999 its price dropped to $10 per barrel. As a result, oil exporting countries lost a total of, according to various estimates, from 50 to 60 billion dollars. In March last year, OPEC decided to sharply reduce production to stop a catastrophic fall in prices. This strategy was justified, the price of oil jumped up and by the end of 1999 - beginning of 2000 reached a record high in recent decades - $34 per barrel. In March of this year, OPEC, under international pressure, decided to increase oil sales quotas in order to stabilize prices at $25 per barrel (see “Results” # 11, 2000).
It seemed that importers had achieved their goal: oil began to fall in price and in mid-April it already cost $22 per barrel. However, this price did not last long and very soon began to rise rapidly again. The fact is that when the price drop became alarming, OPEC, without making much fuss, again reduced oil production. As a result, demand for oil, as at the beginning of the year, exceeded supply. The result is a sharp rise in price. At the beginning of last week, the cost of a barrel of oil reached the $30 mark.
It seems that OPEC is not driven by a desire for stabilization. And the reluctance to increase production can be explained quite simply. When in mid-May oil companies began reporting to shareholders on the results of the first quarter of 2000, it turned out that the income of, for example, the oil giant Royal Dutch/Shell increased by 118%! The company's net profit for the first three months of this year amounted to $3.13 billion, compared to $1.44 billion for the same period last year. Shell said the success was contributed to by a special restructuring program launched by the company's management. But Western analysts note that the main reason is high prices for petroleum products. There is a situation on the world market where a decrease in oil production leads to an increase in the income of its producer. Everyone who works in the energy market today strives to make the most of this “oil paradox.”
This causes extreme irritation for countries purchasing oil. Importers once again demanded that OPEC increase production by at least half a million barrels per day. This measure, according to some experts, should reduce the price to $27 or less.
However, OPEC Secretary General, Nigerian Rilwanu Lukman, believes that there is no reason for special concern: “The price is still lower than it was at the beginning of the year,” he says. OPEC insists that the current price surge may be temporary. “We need to see how the situation develops before taking action,” says Lukman.
The dissatisfaction of importers is understandable: the backbone of OPEC consists of the Arab countries of the Persian Gulf, nicknamed the "world's oil shop." The geological conditions of this area are such that oil production here is very cheap. For example, installing a well on the Persian Gulf shelf costs only $100,000, while constructing a deepwater well in the North Sea costs $40 million. The cost of producing one barrel of Arab oil is only $1.75. Therefore, even during the difficult period for OPEC countries at the end of 1998 - beginning of 1999, when a barrel of oil cost less than $10, its production in the Persian Gulf remained profitable and attracted widespread investment.
OPEC members respond by explaining that not all oil-producing countries have such production conditions, and the organization must ensure that everyone receives income. In addition, energy exporters refer to the laws of the free market: they say, if buyers are ready to take oil for $30 per barrel, why, in fact, should we reduce the price to please someone else's interests?
The point, however, is not only in those three to five dollars by which the price of one barrel of oil will increase or, conversely, decrease. All participants in this battle understand that the struggle is primarily for the principles by which the oil market will live in the 21st century. That is why none of the opponents wants to concede.
The leading economic power, the United States, has long been dissatisfied with OPEC's dictates in the field of energy exports. The first clash between Washington and the Organization of Petroleum Exporting Countries occurred in the 70s, when, in response to American aid to Israel, the Arab countries playing a leading role in OPEC imposed an embargo on oil supplies to the United States. The Arabs said: "The oil bomb defeats the nuclear bomb." The oil bomb turned out to be effective: Americans still remember with horror the gigantic queues at gas pumps. After this, Washington began to actively look for ways to influence the oil market.
America began to carefully build its policy towards exporters. Both the carrot and the stick were used. Washington strengthened its position in the Arab world - it took a more flexible position on the Middle East problem and gradually turned into the “main peacemaker” in this region. The US has been expanding its influence over non-Arab OPEC members such as Venezuela and Indonesia, while providing extensive economic assistance to large non-OPEC oil exporters such as Mexico. American oil companies have consistently expanded their presence in all oil-bearing regions of the world from Africa to the Caspian Sea basin.
The current confrontation between OPEC and Washington is a serious test for the entire American oil policy. Rising energy prices put the Clinton cabinet in a difficult position. The price of gasoline in some states has reached two dollars per gallon (3.785 liters), while back in April a gallon cost $1.6, and a year ago it cost 80 cents. Congress accused the White House of inaction. The average person is dissatisfied - queues at gas stations in the USA have grown again.
The answer to the question of who will regulate the oil market tomorrow largely depends on how successful the Clinton cabinet will be today in confrontation with energy exporting countries. The price of the answer significantly exceeds the huge sums that are circulating today on the oil exchanges of the world. And therefore there is no doubt that a draw will not suit either side.
As a result of rising world oil prices, gasoline in some US states has risen in price to two dollars per gallon (3.785 liters), and queues have formed at gas stations. (Photo: AP )