The Saudis consider a world without OPEC
The Saudis consider a world without OPEC
The main group of experts funded by the government of Saudi Arabia is studying the possible effects in the oil markets of an OPEC rupture, a remarkable research effort for a country that has dominated the oil cartel for almost 60 years.
While think tank chairman Adam Sieminski said the study had not been triggered by Mr. Trump's statements, a senior adviser familiar with the project said it provided an opportunity to take Washington's criticisms into account. Depending on the findings, the study could offer a defense of the cartel and the role of Saudi Arabia in it.
The research project does not reflect an active debate within the government on whether to leave the Organization of Petroleum Exporting Countries in the short term, according to people familiar with the subject.
Senior Saudi officials view the study as a high priority economic policy research, according to these people. Mr. Sieminski said he ordered the study, and that the analysis is not unusual and explores issues in which his researchers usually deepen.
The report is part of a broader rethinking among senior government officials in Saudi Arabia about OPEC, according to people familiar with the issue. Officials are grappling with the assumption, increasingly shared in the oil industry, that oil demand will peak one day, the Saudi adviser said.
In this context, the study is seen among senior officials as an exercise to assess how the markets might react if demand decreases so much that OPEC loses power and dissolves, the advisor said.
For decades, Saudi Arabia and its colleagues have insisted that the Organization of the Petroleum Exporting Countries is a crucial global economic institution, a forum in which large producers can distribute oil production to prevent prices from falling or rising too much.
Critics have accused OPEC of manipulating oil prices at the expense of major oil consuming economies, such as the United States, and Mr. Trump has been opened in his conviction. A group of US lawmakers has promoted legislation that would label OPEC an illegal cartel.
The proposed legislation, called NOPEC, has been weakened by several administrations in the United States. Supporters have said they think it could go better with Mr. Trump.
"The kingdom knows that the demand for oil will not last forever ... so you should think beyond OPEC," said the senior adviser. "You also have a NOPEC act that is being considered" in Washington.
While there is no debate in the Saudi government about the dissolution of OPEC soon, senior government officials have recently begun to question the long-term reasons for the cartel because of the influence that only Saudi Arabia and Russia can have on the markets. , according to another senior Saudi advisory official.
Those questions have grown as Russia has worked more closely with Saudi Arabia in recent years. Russia and a group of allied oil producers joined OPEC in an agreement about two years ago to stop oil production amid super low prices. The combined leverage of the group on global production managed to raise prices, so much so that the group more recently agreed to open the taps again to cool them down. The two parties are scheduled to meet again this weekend in Abu Dhabi.
Despite the impact on global markets, closer coordination has bothered some members of OPEC, who have complained that they are being left out by the decision makers in Riyadh and Moscow.
Spokespersons for the Saudi government and the Ministry of Energy did not respond to requests for comment.
Saudi Arabia's oil minister has long chaired OPEC as its de facto leader. Above, Oil Minister Khalid Al-Falih, on the right, speaks at a meeting in Algiers, Algeria, in September.
Photo:
Anis Belghoul / Associated Press
The think tank, the Center for Studies and Research on Oil of King Abdullah, based in Riyadh, or Kapsarc, considers itself as an independent research institution. His staff advises key Saudi agencies such as Saudi Aramco and the Saudi Energy Ministry.
Mr. Sieminski said the study was based on previous research that analyzed the role of OPEC's reserve capacity in stabilizing oil markets. The previous work concluded that the absence of such a buffer "would lead to a more volatile price environment and would be negative for the global economy," he said.
The research project comes when Crown Prince Mohammed bin Salman, who has extensive control over the kingdom, has pushed several directions to reform his country's economy, society and its broader role in the world. Prince Mohammed pushed An initial public offering of a portion of Saudi Aramco., the country's state oil company, an effort that people familiar with the issue say has stalled since then.
The OPI plan was a pillar in what the crown prince has called a larger plan to modernize the Saudi economy. It has driven large investments in technology and global finance, while the country has tried to attract foreign investors to the kingdom.
Those plans have become complicated after Turkey reported the assassination of dissident Jamal Khashoggi at the Saudi consulate in Istanbul, and then said that Saudi officials "at the highest levels" were behind this. Saudi Arabia has claimed dishonest elements killed Mr. Khashoggi, without the knowledge of the crown prince.
The OPEC study aims to "evaluate the short- and medium-term consequences of an OPEC dissolution," according to a summary reviewed by The Wall Street Journal. It aims to determine what the global oil market and Saudi Arabia's finances would look like "if the coordination among the oil producing countries disappears," according to the summary.
The general description describes two scenarios to investigate, if OPEC is not in the picture: 1. All major oil producers, including Saudi Arabia, act competitively, fighting each other for market share; 2. Saudi Arabia, on the other hand, tries to take advantage of its massive oil production only to help balance global supply and demand in an attempt to keep oil prices stable, similar to the role that members say OPEC plays today.
Two prominent advisers to the Saudi government, both central to the formation of the kingdom's oil policy, are scheduled to meet weekly with researchers on the project, according to the summary. Mr. Sieminski said that contacts with the Ministry of Energy of Saudi Arabia should provide data for the study.
The study comes at a time of particularly acute tensions within OPEC, an unpleasant group on the best of days. Relations between long-standing regional rivals Saudi Arabia and Iran, two of the group's most important members, have been extended to deliberations on oil policy in the Vienna-based cartel.
Saudi Arabia is by far the most important member of OPEC, since it represents more than 10 million barrels per day of the 33 million collective barrels per day of the group. Saudi Arabia's oil minister has long chaired the group as its de facto leader.
The kingdom has tended to publicly minimize its leadership role, emphasizing what he and other members say is the decision-making process driven by the group's consensus. That has given individual members, including Saudi Arabia, some degree of critical coverage.
US sanctions against Iranian oil exports have inflamed recent OPEC debates, and the Iranian delegation accused Riyadh of complying with US orders within the cartel. Saudi officials have sometimes expressed exasperation at what they call Iran's intransigence during what are supposed to be non-political debates in the oil market.
Write to Summer said in summer.said@wsj.com and Benoit Faucon in benoit.faucon@wsj.com
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