OPEC+ and the baby milk price increase

To say that the alliance of the Organization of Petroleum Exporting Countries and its global counterparts, known as OPEC+, is taking “shortsighted” decisions is an oversimplification of the current global energy crisis.

I don’t need to go deeper in reminding everyone who is saying what, but in brief, OPEC+ members are saying that they are doing what they see best for the global economy with their decision to take out 2 million barrels a day of oil from the market starting from November, while the US is saying that OPEC+ is serving its self-interest and siding with Russia, a key member of OPEC+.

The White House's accusation went as far as saying that Saudi Arabia coerced some OPEC+ members to agree to the cuts, according to a statement by John Kerby, the National Security Council spokesperson. He added that there was no economic basis for the cuts and it could've been delayed till the next OPEC+ meeting in December, a claim that Riyadh refuted in an earlier statement from the ministry of foreign affairs.   

The jury is still out on this and every day a new statement or report is issued on this matter. More recently, the International Energy Agency, which reflects the views of its member countries including the US, said in its monthly report that OPEC+ cuts will push the global economy into recession.

During a midterm election, it is very easy for a US president or an administration to blame OPEC+ or Saudi Arabia for high prices at the pump because this is how political candidates get votes. Nothing new here.

But to take the full blame for what is happening and try to fix it takes courage, planning, determination, and self-criticism. 

I don’t want to join the chorus and side with any party. I want logic to dictate my arguments. So what does logic tell me?

First, if there is anyone to be blamed for where the world is heading today, it is the West, more precisely, the US, the G7, and the EU.

The pursuit of unrealistic climate goals and selling the illusion of a 10 or 20-year transition to cleaner energy should be questioned not accelerated. 

It is because of the aggressive policies against fossil fuels we now see this sharp decline in energy investments that led to a thin global oil production and oil refining capacity.

The world needs at least $13 trillions over the next two decades to respond to energy demand but no one wants to think about where will the money come from.

Who is foolish enough to build a refinery in a country that aims to stop selling combustion-engine vehicles in a decade or so? Yet politicians in that country just realized that the fuel should come from OPEC+ and these countries help to make prices of gasoline and diesel affordable.

This is not to say that the world doesn’t need cleaner energy or to fight global warming, but the aggressive approach has consequences that those who back it have to stand for it.  

We can live with these contradictions but we must admit them. 

It is not fair to say that lower oil prices are the only factor that leads to lower oil products. There are other factors such as high taxes on products as well as refining capacity and supply availability.

Second, wasn’t it rational for the countries that are complaining today about an energy crisis to diversify their energy sources?

Many countries, including Qatar, had asked the EU countries to invest in LNG terminals but they declined because Russia was supplying gas via pipelines at a much cheaper cost. 

Well, there is a cost for everything and the cost of long-term energy security should be higher than the cost of securing short-term cheap gas contracts.

Third, Washington’s belief that OPEC+ is the cause of the crisis is neither fair nor rational. OPEC+ is the only entity that can regulate the energy market today. It is due to the alliance’s effort that crude prices are growing at a much slower pace than coal or gas.

OPEC+ cannot increase production even if it wanted to do so and thus it cannot be blamed

Wael Mahdi

That does not mean oil prices should escalate to levels that can hurt the global economy, but to keep thinking about cheap oil prices will mean fewer investments and therefore fewer supplies in the future. And the future can’t be fully electrical, at least not in a decade.

Funny enough, demand for coal today is higher than at any time, and in 2021 it was the fuel for around 37 percent of the electricity generated worldwide.

If we can’t get rid of coal, so is it possible to say that we need to get rid of oil quickly?

Last but not least, the West is taking political decisions on its own and wants OPEC+ to deal with them.

It does not work this way. If you want to plan a world order, you have to include those concerned in the planning.

Consider the EU ban on Russia or applying an oil price cap on its oil sales. How will this lead to lower prices for oil-consuming nations?

No one has the answer. If it is applied, it may result in less Russian crude, therefore, higher oil prices.

OPEC+ does not have all the solutions. In fact, there is not enough spare capacity in OPEC+ to do anything.

That is why the OPEC+ decision to cut 2 million barrels a day did not have an impact on the market because the alliance did not even produce what it agreed on in the first place.

The alliance can only lower output by 1 million barrels, which is what everyone seems to agree on.

OPEC+ cannot increase production even if it wanted to do so and thus it cannot be blamed. Yet during a midterm US election, it is the easiest choice.

I don’t want to defend or blame any side. I have one message i.e. before we solve the world’s issues, we must admit them and work on them and decide what the priorities are. 

Cheap energy, clean energy, or energy security. We can’t have them all together.

We can’t blame OPEC+ for everything as to what the Saudi energy minister said in Vienna a week ago that with baby milk prices going up, OPEC+ will be blamed for it.

So let’s ask ourselves who is now shortsighted. A group that defends oil market interests in the long-term, or a group that seeks short-term political gains with no sound energy-security policy in place for the long run?

The jury is still out.  

 • Wael Mahdi is a senior business editor at Arab News and co-author of “OPEC in a Shale Oil World: Where to Next?”

Twitter: @waelmahdi