Troubled OPEC Seeks Expansion
Russia as a member of the Organization of Petroleum Exporting Countries (OPEC): how does that idea sound to you? What with the low oil price prevailing nowadays (lately just below $45 for a barrel of Brent crude), that seems just the ticket to Shakib Khelil, Algerian Minister for Energy and acting OPEC President, who recently declared that “Russia will provide a particular importance to OPEC if she re-joins it, that will augment OPEC’s power to control production, which would be around 50% instead of [the present] 40% of global production.” This was according to an article in the French daily Le Monde: Russia invited to rejoin OPEC.
That’s “re-join” there in the article’s title, because it seems Russia already joined the organization back in 2000, as a non-permanent member. But there was a small problem: the very function of the OPEC cartel is of course to raise the international price of oil by lowering each member’s production in a mandatory way, namely through assigned quotas. However, Russian authorities did not like to be told from the outside how much oil they were allowed to produce and to sell. (On the other hand, cheating on those quotas within OPEC is notorious – as well as predictable, as any economics professor should be able to show you. Perhaps the Russians are to be congratulated for having been unwilling in the past to join their potential OPEC colleague-nations in the hypocrisy of accepting the quotas while working to undermine them out of the public eye, in favor of simply rejecting them outright.)
Now, though, the low oil-price is also hurting Russian fortunes, so that a re-think might be in order. Russian President Dimitri Medvedev has recently declined to exclude the possibility of re-joining the oil cartel, and even dispatched a high-powered delegation to attend an OPEC meeting scheduled for this week in the Algerian city of Oran, namely a vice-premier, Igor Setchine, and the Russian Minister of Energy, Sergei Shmatko.
Unfortunately, these two officials will most likely find OPEC ready to cut oil production (i.e. reduce quotas) still further, from the present level of 27.3 million barrels of oil per day. As always, but particularly now, Russian OPEC membership will inevitably mean Russia producing and selling less oil than she would prefer – at least out in public.
