Chennai
The suspension of oil shipments from the Middle East to the US and steep production cuts in retaliation for the Americans’ support of Israel during the Yom Kippur War wreaked havoc on the US economy, leading to fuel shortages and causing oil prices to go through the roof.
The ban was lifted within months following hectic negotiations, but not before it pushed the US economy into its worst recession since World War II. The Organization of Petroleum Exporting Countries (OPEC), which until then had maintained a relatively low profile, mainly negotiating higher oil prices from major oil companies for its members, had emerged as a force to reckon 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 a shale boom, and a global push for renewable sources of energy amid climate change worries.
“OPEC is significant primarily as a political club. It fails economically as a cartel, but it does boost the prestige and standing of its members, most of whom would not otherwise have a seat at the table in world affairs,” said Jeff Colgan, a professor at Brown University who authored the book Petro-Aggression: When Oil Causes War. “A functional cartel needs to set tough limits to production and stick to them. OPEC sets easy targets and still often fails to meet them,” he told DW.
The bloc has seen its market share progressively diminish over the years, in part thanks to its efforts to artificially boost oil prices by holding back its own production. OPEC’s share of the global oil market has fallen to around 30% from above 50% in 1973. It has also been hurt by involuntary losses in war-torn Libya and the fallout from US sanctions in both Iran and Venezuela.
It was OPEC’s weakness amid the rise of the US as a major oil producer that prompted the once exclusive club to join hands with Russia and some other oil producers to form OPEC+ and attempt to balance the 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, which caused oil prices to collapse to around $30 a barrel. US shale players then proved to be more resilient than the Saudis had expected — strong enough to push the US to become the world’s biggest oil producer.
Peak oil debate heats up
The bloc’s waning influence has coincided with oil’s fall from grace. The fossil fuel has seen its share in the global energy mix diminish to about 33% from a peak of 50% in 1973, according to estimates by BP, as governments and companies shift to cleaner energy sources to combat climate change. By contrast, renewables, mostly from solar and wind, have seen their share rise, accounting for over 40% of global energy growth last year, according to BP’s data.
“Oil isn’t as significant or visible as it used to be. For example, do you know who the head of Exxon is? Probably not. Do you know who the head of Tesla is? Yes, Elon Musk,” said Philippe Benoit, from consultancy Global Infrastructure Advisory Services 2050.
The COVID-19 pandemic has further dimmed oil’s prospects. Global lockdowns brought cars, planes and trains to a screeching halt, causing oil consumption to drop by a quarter and oil prices to crash to multi-year lows, even trading below $0 a barrel in the US at one point. Transportation accounts for close to a third of the global oil demand.
Experts don’t see the automobile and aviation sectors returning to their pre-pandemic levels for the next 3-5 years at least. The airline industry was touted to be the biggest growth engine for oil, riding on demand from people getting richer, but that now looks unlikely, especially over the next few years.
— This article has been provided by Deutsche Welle
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