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The ban was lifted months after hectic negotiations, but not before it pushed the US economy into its worst recession since World War II. The Organization of the Petroleum Exporting Countries (OPEC), which until then had kept a relatively low profile, mainly negotiating higher oil prices from major oil companies for its members, had emerged as a force to be reckoned with.

Nearly five decades later, OPEC remains only a pale shadow of its past glory, weakened by infighting within its ranks, the rise of the United States as a major oil exporter thanks to the shale boom, and a global push for oil companies. renewable energy sources amid climate change concerns.

“OPEC is important primarily as a political club. It fails economically as a cartel, but it increases the prestige and position of its members, most of whom would not otherwise have a seat at the world affairs table,” said Jeff Colgan. . a professor at Brown University who is the author of the book Petro-aggression: when oil causes war. “A functional cartel needs to set strict limits on production and stick to them. OPEC sets easy targets and often falls short of them,” he told DW.

The bloc has seen its market share decline progressively over the years, in part thanks to its efforts to artificially boost oil prices by withholding its own production. OPEC’s share of the world oil market has fallen to around 30% from more than 50% in 1973. It has also been affected by unintended losses in war-torn Libya and the consequences of US sanctions on both Iran and Iran. In Venezuela.

It was the weakness of OPEC amid the rise of the US as a major oil producer that prompted the once exclusive club to join Russia and some other oil producers to form OPEC + and attempt to balance oil markets. The alliance’s inception in 2016 was preceded by a disastrous campaign by the Saudi-led bloc to force weaker US shale players out of business, causing oil prices to collapse to about $ 30 a barrel. The US shale players proved tougher than the Saudis expected, strong enough to propel the US to become the world’s largest oil producer.

Peak Oil Debate Heats Up Amid COVID-19 Crisis

The waning influence of the bloc has coincided with the fall from grace of oil. Fossil fuel has seen its share of the global energy mix decline to around 33% from a peak of 50% in 1973, according to BP estimates, as governments and companies switch to cleaner energy sources to combat the climate. climate change. By contrast, renewables, primarily solar and wind power, have seen their share rise, accounting for more than 40% of global energy growth last year, according to BP data.

“Oil is not as significant or visible as it used to be. For example, do you know who the CEO of Exxon is? Probably not. Do you know who the CEO of Tesla is? Yes, Elon Musk,” said Philippe Benoit. , from the consulting firm Global Infrastructure Advisory Services 2050.

The COVID-19 pandemic has further clouded the outlook for oil. Global lockdowns brought cars, planes and trains to a halt, causing oil consumption to drop by a quarter and oil prices to drop to multi-year lows, even trading below $ 0 a barrel in the US. In a moment. Transportation accounts for about a third of world oil demand.

Experts don’t see the auto and aviation sectors returning to their pre-pandemic levels for at least the next 3-5 years. The airline industry was touted as the fastest growing engine for oil, thanks to demand from people getting rich, but that now seems unlikely, especially in the next few years.

Oil industry leaders, including BP CEO Bernard Looney and Royal Dutch Shell boss Ben van Beurden, have said the current crisis may cause oil demand to peak earlier than expected. .

“The backdrop of declining demand means that the Kingdom [of Saudi Arabia] and their Gulf allies would find it increasingly difficult to manipulate supply and raise prices over any length of time, “wrote Jason Tuvey of Capital Economics in a note to clients.” If prices remain artificially high for an extended period, oil demand will end up declining at an even faster rate and the agility of US shale production means that supply outside of OPEC will expand. ”

‘OPEC is a Saudi spokesperson’

OPEC was founded in Baghdad in September 1960 by Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. The bloc, which has expanded and contracted over the years, has been plagued by disputes over strategy and regional power struggles, which have occasionally escalated into full-blown conflicts like the Iran-Iraq war and invasion. Iraqi from Kuwait in 1990.

Saudi Arabia, which produces a third of OPEC’s oil, has remained the bloc’s de facto leader since the 1990s, when conflict, corruption and mismanagement ruined production in other member countries, including regional rivals Iran. and Iraq.

Riyadh has oscillated between propping up crude oil prices and protecting its market share, often unilaterally. “OPEC is a Saudi mouthpiece,” Colgan said. In March, when OPEC + negotiations to cut production in response to the pandemic failed, Saudi Arabia launched a price war against Russia, to the dismay of weaker OPEC members like Nigeria and Angola, who were already bleeding. due to low oil prices caused by the Riyadh crisis in 2015. -16 misadventures.

For all its dominance, Saudi Arabia has struggled to curb the bloc’s alleged cheaters, including Nigeria and Iraq, who have been notorious for failing to deliver on promised production cuts aimed at propping up oil prices. Riyadh, which is more vulnerable to low oil prices than other major oil producers with its breakeven price exceeding $ 80 a barrel, has ended up doing much of the heavy lifting to ensure overall compliance.

Tuvey of Capital Economics says that in the medium term Saudi Arabia will reduce its efforts to prop up oil prices and revert to the strategy of protecting its market share at any cost to avoid leaving substantial amounts of oil stranded amid falling demand. .

“Such a change in policy, particularly if it were sudden and unexpected, would put some downward pressure on oil prices. But this is unlikely to be too worrying for the kingdom, and the government has shown its willingness to impose a tough fiscal austerity, “he added. Tuvey said. “Saudi politicians will not feel much sympathy for other producers who fail to adjust their economies to low oil prices.”

Greater role for OPEC?

However, it may be too early to write an obituary for the bloc, which has survived many crises in the last 60 years, sparking comparisons to the proverbial cat with nine lives. Oil is likely to remain the world’s most important commodity for years to come.

“Paradoxically, OPEC as an aggregator, a meeting point for many producing nations, could potentially play a larger role in managing the tensions of a contracting market among those oil producers,” Benoit said.

Published with permission of German wave.