In a historic move, the Organisation of Petroleum Exporting Countries (OPEC) last week agreed to the first cut in production for eight years.
Two years to the day since the world’s most powerful cartel decided to let oil prices flit on the winds of the global markets, the 14-member combine has agreed to slash 1.2 million barrels per day (bpd) from the global supply kitty.
As a reaction to this most unexpected turn of events, especially unexpected here, the price of a barrel of Brent crude rocketed to 2016 highs, breaking through the $55 mark. The frisson that sent the financial world into giddy fits, may begin to tingle up the spine anew as Russia is set to join OPEC in production diminution for the first time in 15 years.
Unsurprisingly in the opaque world of energy geopolitics, all is not as it seems. Peering through the frosted glass of this “unilateral” agreement, we glimpse a house divided: the overall production cut tells but half the tale. Beleaguered Iran and war-riven Libya will actually boost their production quotas in the coming months, whilst the Gulf Cooperation Council (GCC) countries and Iraq will shoulder the weight of reduced production.
OPEC’s kingpin, The Kingdom of Saudi Arabia – whose hankering to solidify dominance over its market share in the crude oil continuum has been blamed for OPEC’s race-to-the-bottom strategy – will slash its production by almost five per cent in the proposed agreement.
What does this all mean and who stands to benefit from this change of heart at the top of the oil producing pyramid? Standing across the sectarian divide from its Sunni counterparts, the current deal is a clear coup for Iran, whose welcome back to the hearthside of international relations retains a toasty glow after long years out in the cold.
After eating into its cash reserves for 24 months and prosecuting a war on reduced income, OPEC’s U-turn must be seen as somewhat of a body blow for the Saudi establishment, but far from a fatal one: any hike in oil price will benefit such a large producer.
In the short-term and from a geopolitical standpoint, the real winners are sitting on the banks of the Moskva River and at 1600 Pennsylvania Avenue.
The Russian Federation will see any price boost as a welcome augur for 2017, benefiting both government revenue and the rouble. For the pro-hydrocarbons president-elect of the United States, this is as good as a green light for increased shale production from the day of his inauguration. Lest we forget the tiger in the room, reduced OPEC exports could also be a boost for China’s domestic oil production capacity, which has dropped off markedly in 2016.
With clear beneficiaries and vexed counterparts, after a tumultuous 2016, who is to say 2017 will not also be brimful with the nectar of discord?