The Growing Anti-OPEC Movement Is Disasterous For Oil Markets

Earlier this year, Italy’s then-PM Mario Draghi floated the idea of large oil buyers clubbing together and standing up to OPEC+. The idea did not progress much further than the floating stage because one obvious problem could not be ignored: OPEC would retaliate. Yet it seems that some ideas tend to be so attractive that they resurface, again and again, in slightly different forms. The idea of an anti-OPEC buyers’ club has also resurfaced, and not just that, but a NOPEC bill has moved to the Senate in the United States and, according to media coverage, has a chance of passing. 

Some, however, have gone further than a bill. One Bloomberg columnist, Carl Pope, recently detailed his vision of an anti-OPEC grouping, which manages to combine the idea of both affordable oil and a push for the electrification of transport. Again, the problems are too obvious to overlook.

For starters, Pope suggests that in case the NOPEC bill is successful, the U.S. could start punishing OPEC+ members by imposing fines, import tariffs, and even sanctions, as well as barring access to public financial markets to national oil companies such as Aramco and Rosneft.

The message here seems to be along the lines of “That’ll show them,” but this message ignores the fact that first, Rosneft is already heavily sanctioned and cut off from Western financial markets, and second, Aramco is not exactly Chevron or Shell, and while it has recently tapped markets several times, it’s questionable whether it is so dependent on external finance that it would suffer any serious harm from such measures.

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The other fact that Pope’s idea seems to ignore is that such punitive measures would essentially mean that OPEC+ oil would become more expensive for the countries that employ the measures. Any oil becomes more expensive, really, when sanctions or tariffs are introduced on a third of the global supply. Again, this wouldn’t be such bad news for sellers of oil, including the U.S., but it would certainly be bad news for buyers – again, including the U.S.

The alternative to OPEC that Bloomberg’s Pope proposes is what he calls an Organization for Clean and Affordable Transportation. Pope says it should be made up of “responsible oil producers and consumers”. This means the U.S., Canada, and Norway on the producing side and pretty much everyone but OPEC+ on the consuming side. That’s not a whole lot of responsible producers.

The idea appears to follow the model of the so-called friend-shoring push spearheaded by the United States in critical minerals. For now, the push aims to re-draw supply chains for the energy transition and reduce China’s overwhelming dominance in critical minerals mining and processing. The idea, like Pope’s OCAT, is to rely on friendly producers of the raw materials needed for the transition. The problem, like with OCAT, is that such friendly producers can provide only a fraction of the supply necessary for the transition.

The administration in Washington likes to control all sorts of prices. It also likes to control the supply of oil, although it has failed to accomplish anything resembling control of that so far, even at home, let alone over OPEC+. Indeed, the U.S. oil industry is very much against a NOPEC law because it knows how the oil market works.

As the president and chief executive of the industry lobby group the American Petroleum Institute said in comments on the latest developments around the NOPEC bill, it “would create further instability in the marketplace and exacerbate existing challenges in international commerce. Such legislation would be unhelpful in any market condition past, present or future.”

The U.S. and the European Union, which Pope suggests should form the new anti-OPEC Organization for Clean and Affordable Transportation, already made a grave mistake with Russia. They assumed that whatever they threw at it in the way of sanctions and asset freezings, Russia wouldn’t retaliate because it needs Western markets.

Now, NOPEC supporters seem to be making the same dangerous assumption: that OPEC+ would not retaliate against punitive action from the West. And that the West can survive longer without OPEC+ oil than OPEC+ can survive without selling its oil to the West. As we can see from what has been happening in Europe over the past few months, this is a highly questionable assumption.

The hopes behind an anti-OPEC push are hopes of more control of the global oil market so price spikes that hurt economies are avoided. The reality is that such control is impossible for a group of countries that only includes three oil-producing states of any respectable size plus the UK – an oil power in decline thanks to government transition plans.

In any market, it’s not so much about who represents the most demand that can move the market where they like. It’s about who represents the most supply. This is perhaps the best argument in favor of the energy transition and the electrification of transport, so it is quite unfortunate that China looms so large in that department, just as Saudi Arabia, Russia, and their friends in OPEC+ loom large in oil.

By Irina Slav for Oilprice.com

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