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OPEC’s decision to reduce oil production proves that its the era of multilateral diplomacy, which involves cooperation with rivals.

by Paarth Pande - 27 October, 2022, 12:00 241 Views 0 Comment

On October 5, OPEC+ (Organization of the Petroleum Exporting Countries) stunned the international community by announcing that starting this November it would be cutting oil production by 2 million barrels a day. Making it the deepest cut since the coronavirus pandemic. The decision makes an already energy-stressed world, at the very beginning of peak winter, more insecure. This has caused much outrage among several countries and the United States, a key ally of several member countries, has threatened that it will retaliate.

The scope of this decision goes well beyond immediate economic reaction, it highlights a new geo-political reality. The fact that nations like Saudi Arabia and UAE, countries perceived to be dependent on America, agreed to this shows that the idea of a multi-polar world is now translating into concrete policy. To not take a moment and scrutinise this decision would be doing it an injustice.

OPEC

In most western commentary OPEC(+) is usually described as a cartel which seeks to maintain and stabilize international crude oil prices. However, the reality is a bit more complicated. The organisation was established in 1960 by five countries: the Islamic Republic of Iran, Iraq, Kuwait, Saudi Arabia and Venezuela during the peak of the cold war. These countries weren’t the antagonistic competing powers that they are today but were states which saw themselves as victims of exploitation by Western Oil companies. Given, USSR was energy sufficient, the NATO block was heavily dependent on oil-exporting countries and thus sought control over them. This multi-lateral body became an important tool for members to enjoy sovereignty over their resources. Such was their influence that in 1973 the group imposed a crippling embargo on the United States, over Washington’s decision to re-supply the Israeli military after the 1973 Arab-Israel war, triggering the very first oil crisis. However, as the cold war ended and the energy market widened and opened up the organisation’s influence started falling. The beginning of a power struggle between Iran and Saudi weakened the group further, with some even speculating that it was the end of OPEC. However, this announcement of cutting oil production, in the wake of the Ukraine-Russia crisis, proves all such doubters wrong.

Impact

As stated earlier the decision will have far-reaching consequences,  primarily rooted in two lines:

  1. Economic:

Every economy is directly affected by oil prices, mixed with the post-covid broken economy this decision is bound to make life difficult for most. The places where it is going to hit the hardest are

  • Inflation: The world is reeling under massive inflation, largely because of the lockdown-induced supply chain crisis. It had barely recovered when Russia was placed under crippling sanctions, resulting in another aggravation pushing most of the western world into a cost-of-living crisis. With this cut in production, it wouldn’t be surprising if another round of inflation occurs.
  • Renewable delusion burst: Given that not everyone will be able to afford this newer more expensive oil, there is bound to be an energy crisis, particularly at the household level. This will for sure force most to accept that for the coming decade, and maybe beyond, the idea of renewables replacing every source of energy is a far-fetched one. Even liberal commentators like Fareed Zakaria have called out the obsession with dumping non-renewable hydrocarbons.
  • Expansion opportunity for Russia and Iran: The decline in the availability of oil will force many to turn towards anyone who has the resource. Therefore, pushing many to defy American sanctions and buy oil from Iran and/or Russia. This decline in production is a good opportunity for both to establish financial independence away from the west and have a stronger bargaining position in their respective grievances.
  1. Political:

Given the all-pervasive nature of the price of oil, there’s usually an immediate reaction to fluctuations in it. Plus the overtly polarised nature of elections across the world means no sympathy from the opposition. Thus backlash will come in several forms:

  • Antagonism against Ukraine will increase: Opinion of Ukraine in Washington hasn’t been of unanimous support, with particularly strong pro-Putin opinion amongst Republicans. With another wave of inflation, people are bound to turn even more hostile towards the idea of supporting Kyiv. With no clear end in sight, countries may push Ukraine to compromise.
  • Elections: The war in Ukraine has already turned many countries in the west upside down. The United Kingdom saw the exit of Liz Truss barely a month after she gained power, Italy elected a far-right leader and Czech Republic’s population is embracing the far right as energy bills have soared. But the most important impact of it will probably be on the upcoming midterm US congressional elections, where Republicans are expected to win the house. Making it even more difficult for Joe Biden to achieve his fairly elaborate plans.
  • USA’s relations with Saudi: Gulf countries have been close allies of the United States and have been key energy partners for many western countries. Their decision to cut down production despite specific requests clearly proves that the nations no more see America as a reliable partner and seek to chart out their own path. This is despite their normalization of relations with Israel, a key US partner.

 Implications:

The last time when OPEC stood up to the United States was during the peak of the cold war when the NATO block was dependent on the gulf. Since the dawn of a uni-polar American order, the organisation never really united against Washington’s diktats. Though Iran occasionally challenged them that was because of its geopolitical commitments and rarely out of a desire to lock out Americans from the region. This shift of cooperation between these divergent competing powers clearly shows that the era of multi-polar world order is here and governments have to start putting national interest above alliance commitments. Some key highlights of this decision are

  • Rivals can agree and work together: Iran and Saudi Arabia are engaged in several proxy conflicts but because of common economic needs the two have joined hands.
  • Allies can’t be taken for granted: The United States has become accustomed to sending dictates and expecting everyone to follow them. In the Russia-Ukraine crisis case, only EU members seem to have followed through diligently. If nations expect cooperation then constant engagement will be necessary.
  • Diplomacy is as important as hard power: When the Ukraine-Russia war began it broke several myths about the war between large nations being a thing of the past. What has been missed out on again is the role of diplomacy during such tensions. That even when there is a crisis, partners can unite on a common ground to work together.

Lessons for India:

  1. Maintain strategic autonomy: India has so far maintained strategic autonomy and has continued to engage with several multi-lateral organisations. On one hand, has supported groups like BRICS (dominated by Russia and China) with initiatives like New Development Bank while simultaneously escalating the status of Quad, led by the USA.
  2. Acknowledge dependency: India is an energy-dependent country. India is one of the largest importers of crude oil and therefore it needs to diversify its sources of energy. Also look at critical infrastructure which the nation can be cut off from, the way Russia was and look at other multi-latera alternatives. Creating such alternatives can help evade sanctions.

As the world rapidly changes, nations from henceforth are keeping in mind that there are no permanent friends or enemies, just interests. Based on it a new multi-lateral broad world order is being created with every nation being both friend and a rival simultaneously, albeit on different fronts.

Paarth Pande
Author is a freelance journalist and political commentator
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