Jason Bordoff, a Columbia University professor and former energy adviser to President Barack Obama, wasn’t surprised by Iran’s reaction: “When the president of Russia announces an OPEC decision before an OPEC meeting even starts, that may rub OPEC members the wrong way,” he said. “That risks alienating OPEC members.”
A shaky alliance
“Iran’s statements reflect a growing political division between the member states, if not OPEC decision makers themselves,” said Clayton Allen, senior vice president of trade, policy and geopolitics at Height Capital Markets.
As the world’s largest oil exporter, Saudi Arabia is the de facto leader of OPEC. But the cartel includes 13 other members, including Saudi arch rival Iran. Since late 2016, OPEC has teamed up with Russia and other non-OPEC members to try to stabilize the oil market by holding back production.
“Iran is pushing back on this notion that OPEC is now being governed by a small minority of its members,” said Allen.
Saudi Arabia downplays tensions
When CNN asked about these tensions, Saudi Arabia Energy Minister Khalid Al-Falih on Monday stressed that OPEC members are pragmatic, choosing to focus squarely on supply and demand.
“We have had wars. We have had conflicts, differences between different countries. We keep them outside the room,” Falih said.
To Falih’s point, dissent within OPEC has to some extent been going on since the group formed in September 1960.
Saudi Arabia and Iran have long been rivals in the Middle East. Iran and Iraq were at war for nearly a decade beginning in 1980. And in 1990, Iraq invaded fellow OPEC member Kuwait — an incursion that would start the first Gulf War.
“Just like any cartel, the members have been bitching at themselves since OPEC was started,” Allen said.
Factions in modern OPEC have been amplified by US sanctions on Iran and Venezuela, which have sidelined hundreds of thousands of barrels of crude.
It’s unclear whether Iran’s concerns about Russia and Saudi Arabia dominating OPEC’s decision making will spread to other members of the cartel.
Shale revolution challenges OPEC
The answer could emerge as OPEC faces tougher calls in the future about production. Even Iran’s oil minister conceded on Monday that this week’s decision was a relatively easy one.
Saudi Arabia’s alliance with Russia reflects OPEC’s shrinking market share. Spiking shale output in the United States means OPEC manages a smaller piece of the pie than it used to.
Not only has America surpassed Saudi Arabia and Russia to become the world’s largest oil producer, but Texas alone will soon pump more than any OPEC member besides Saudi Arabia.
“OPEC is clearly challenged by the stunning surge of US oil production,” said Columbia’s Bordoff.