Divided cartel headed for 'slow, painful death'

TIM WEBB | JUNE 2011 | SOURCE: Wall Street Journal

No one predicted the outcome of what had been billed as the most crucial OPEC summit for decades.

The cartel of oil producers, riven by civil war and unrest, met in Vienna on Wednesday for the first time this year. Their choice: pump more oil to dampen soaring oil prices and prop up the tottering global economy, or hold output steady to maximise revenues and prop up member governments' faltering positions at home.

Divided cartel headed for 'slow, painful death'

But the cartel decided to do neither. The summit broke up in disarray, unable to make any decision. Members could not even agree to issue a closing statement. Oil prices rose $US2 afterwards and Ali al-Naimi, the normally tight-lipped Saudi Oil Minister, said that it had been "one of the worst meetings ever".

But the Saudis rushed to reassure world markets that they would unilaterally pump more oil to keep the world supplied.

In April, at a function in Tehran to mark OPEC's 50th anniversary, secretary-general Abdalla El-Badri recalled that it had been founded to safeguard members' "legitimate national interests and to ensure order and stability in the international oil market".

Yet the cartel has become increasingly polarised between two camps. One is led by Saudi Arabia, the only OPEC member among the G20 club of richest nations, which is worried that high prices will push the global economy back into recession. The other, led by Venezuela and Iran, is not inclined to do the West any favours and does not want oil prices to fall.

There have been rifts within OPEC since it was set up, according to David Pumphrey, a senior fellow at the Centre for Strategic and International Studies, but never have they been so marked as now. The rift has crippled OPEC's other founding purpose -- to influence prices.

"OPEC has shown itself to be weak and ineffectual in terms of balancing the market," he said.

Some question whether OPEC even has a future. Julian Lee, of the Centre for Global Energy Studies, said: "There is a real danger that OPEC is heading in that direction. But if it's dying, it's going to be a long, drawn-out, painful Shakespearean death. OPEC is fairly dysfunctional at the moment."

Saudi Arabia, which is pumping more than 9 million barrels per day, has another estimated 3 million in reserve capacity and will play an increasingly pivotal role in setting oil prices.

Related article: Following “worst meeting ever" is OPEC still relevant?

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