Dialogue Rather Than Cartel

Featured Image

Nikolay Pakhomov

Rethinking Russia Expert

Igor Sechin’s statement about OPEC’s demise as a united organization has caught attention worldwide. Although the CEO of Rosneft expressed something that sticks out a mile for experts, his comment gives some food for thought both about Russia’s relations with other energy-exporting countries and general characteristics of today’s international energy system.

Over the last ten to fifteen years, Moscow was understood to have lacked ambition to be a full-fledged OPEC member. The point was not only – and not so much – that those years have seen the organization’s substantially reduced capabilities amid growing friction among the member-states, or increasing oil supplies from non-OPEC countries. Apparently, under such circumstances, Russia, which is socio-economically and geopolitically different from OPEC, had few incentives to take the membership seriously. Yet the divisions were of a far more fundamental character. Having joined the ranks of the largest hydrocarbon exporting economies, Russia suggested an innovative approach to ensuring global energy security, whereas OPEC activities continued implementing outdated and dysfunctional strategies.

To fully grasp the novelty of Russia’s approach, we should pose the following question: what exactly presents the main challenge to providing global energy security? In a bid to answer this question, we will fail to see the wood for the trees. In other words, paying too much heed to such details as exporters’ ambitions, stronger demands from importers, environmental costs, and conventional challenges to delivering security we will hardly get to the crux of the matter. As of now the very complexity of the international energy system impairs the effectiveness of energy cooperation on a global scale, particularly when it comes to guaranteeing energy security.

Once oil prices were set by the Railroad Commission of Texas and then by “Seven Sisters”. After a while this responsibility shifted to the OPEC cartel. However, following the market entry of numerous state-owned oil and gas companies ruled primarily by political logic, the burgeoning demand from Asian countries at the end of the 20th century (accidentally, their current consumption continues to outpace the Western uptake), a broadening, deepening and speeding up of worldwide interconnectedness, as well as technological developments, the realization of the unfolding processes in global energy markets requires remarkable efforts.

Looked at in this light, it would be naïve to expect an organization, let alone the cartel established in a different epoch to accomplish other task, to boost international energy cooperation unilaterally, even for its members.

Unsurprisingly, over the recent fifteen years, Russia has been promoting a completely different approach. It strives to engage entirely different countries in a dialogue which is objective, focused and devoid of political head-to-heads over other issues. These countries perform different roles in international energy interaction. Even if their interests coincide with those of Russia as an exporter and OPEC member, this cooperation is more fruitful that OPEC’s rigid decision-making and execution of schemes which misfire in the modern world.

Let us stress that Russia has been cultivating such relations with OPEC over all these years. However, while Russia suggested addressing specific issues, – for instance, the role of speculation in determining oil prices or especially global oil demand, – the Organization had its hands full with dispute settlement and an attempt to work out a joint stance. (Mind that Igor Sechin, first as deputy head of the Presidential Administration and then as deputy prime minister, worked on implementing the relevant Russian policies, including the cooperation with OPEC.)

In this context, the contrast between OPEC and the Forum of Gas Exporting Countries, a new global energy organization which was established at around the same time (accidentally, Russia played the decisive role in its creation), is striking. At first, observers, particularly those railing at Russia, claimed that Moscow was allegedly trying to set up a global gas cartel. Then, as they realized that the fundamental differences of the global gas market impede the creation and the Forum falls a long way short of the cartel, fear gave way to skepticism. Some would even say that the absence of a cartel testifies to the failure of the organization. Russian policy critics went as far as to blame Russia for it.

But over time, the number of the member states grew. Today the Forum is made up of 19 major natural gas producers, including 12 permanent members and 7 members with the observer status. The organization has markedly gained momentum. It turned out that the Forum is mainly focused on expertise exchange to improve the efficiency of the member states’ gas sector. Moreover, the Forum seeks to engage gas importers. Indeed, efficient gas production and steady supply to the global market address the energy security challenges of consumer markets, do they not?

In his closing speech at the Second Summit President Putin, who hosted the 2013 Gas Exporting Countries Forum, said that “What we propose is a simple and understandable mutually binding formula for global energy security: producing countries guarantee increased supplies of resources over the long haul, and consumer countries make their contribution to global energy security by ensuring long-term demand.”

When it comes to ensuring global energy security OPEC’s prospects of success are apparently bleak. The organization was founded merely to secure attractive prices for oil exporters. Nowadays, however, the cartel’s challenge is not confined to drawing new external exporters. In the modern context, the three groups – exporters, importers and energy transit countries – cannot handle the problems unilaterally. It must also be noted that it becomes increasingly difficult to categorize a state as belonging to the specific group.

Russia, which is the world’s major exporter of oil, gas, coal and electricity, can be viewed as the most graphic example. A more in-depth analysis reveals that Russia is also the largest energy consumer with due concerns about energy conservation. Just a quick look at the official documents will suffice to see that apart from the export-related energy security matters, consumption and import issues also top the formal agenda, if not covered more extensively. Moreover, there is apparently an understanding that Russia’s potential as the energy transit country is yet to be unlocked.

Such developments worldwide are bound to make one scratch his head over why OPEC still exists. Formally, the organization keeps working even though its key member, Saudi Arabia, has recently claimed it has little concern about low prices. It also puts emphasis on increasing supplies regardless of the price while restructuring and diversifying the country’s economy to reduce its oil dependence. The kingdom has the inalienable sovereign right to implement any policy, even if a risky one. This strategy, however, dooms OPEC to collapse. More importantly, thorough analysis of today’s global energy market points to the need for broad international collaboration. Even Saudi Arabia cannot do without it.

Over the last decade, Russia has openly aired its views on cooperation and has taken some steps to execute these plans. A seemingly looming OPEC collapse can contribute to encouraging other exporters to be much more actively involved in the implementation of Russian initiatives.

List of Comments

No comments yet.