ENERGY-OIL: Middle East and OPEC May Lose Power Base

By IPS Correspondents Reprint | | Print |

Senthil Ratnasabapathy

VIENNA, Jun 22 1995 (IPS) - The importance of Middle Eastern oil is set to diminish in coming decades as oil is discovered in other parts of the world and also due to a levelling off in consumption levels, say analysts.

According to a research paper submitted at an international energy workshop taking place in Austria this week, the Middle East will continue to remain home to bulk of the known oil reserves, but new findings elsewhere together with a low growth in oil use will put a strain on the oil influence of the Middle Eastern countries.

“The Middle East’s massive oil resources are essentially irrelevant to the region’s prospective contribution to global oil supply,” said the paper, submitted by Peter R. Odell of the Britain based Centre for International Energy Studies.

He also says that the Organisation of Petroleum Exporting Countries (OPEC) may soon lose its strong political and economic influence in regulating production to push up world prices.

His paper was presented at a workshop organised by the Austrian- based independent think-tank International Institute for Applied Systems Analysis (IIASA) and the U.S. Stanford University.

The workshop, which took place in Laxenburg south east of Vienna, ended Thursday two days after the 12 member OPEC concluded its ministerial conference in the Austrian capital by deciding to continue with its production ceiling of 24.5 million barrels per day (bpd) till the end of this year.

The continuation of the ceiling is seen by industry experts as the cartel’s determination to prevent prices sliding due to over- production. The oil cartel’s ideal price is 21 dollars per barrel, but the oil market has not reacted to the OPEC determination favourably.

The current price is still in a better position as compared to last year when it hit 13 dollars per barrel, but on Wednesday it declined to 16.1 dollars, as compared to 16.5 dollars the previous day, when the OPEC meeting ended.

Known global oil reserves amount to more than 1,000 billion barrels, of which roughly three fourths are located in the 12 OPEC countries of Algeria, Gabon, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates and Venezuela.

Odell says that despite the increase in the oil consumption over the past few decades, the global reserves has increased — indicating that more oil has been added to the reserves than that has been taken out. “The world is running into oil, not out of it,” he said.

In 1973, there were 527 billion barrels in oil reserves, compared to 1994 when there were 1,051 billion barrels in reserves. In the same period, a total of 488 billion barrels of oil were used. The present oil consumption is estimated to be around 67 bpd and the OPEC share is less than forty per cent.

There has been no consensus among oil industry experts and others about the future increase in oil consumption — influenced by the population growth in developing countries, the industrial growth in the newly industrialised countries and an expected increase in demand in the West due to industrial growth.

The International Energy Agency estimates that the oil demand will grow by two per cent over the next 15 years, but other conservative estimates put the growth rate around one per cent.

As far as OPEC influence in regulating production is concerned, O’Dell says it will diminish as a result of three factors. They are the slow rate of consumption growth, the desire of most of the non-OPEC countries to reduce their dependency on oil imports as well as new finds.

The dependence on imports within the 25 member Organisation of Economic Cooperation and Development (OECD) — the club of industrialised countries — has dropped to about 62 per cent now, as compared with 86 per cent in mid-seventies.

In western Europe, parts of which are supplied by oil from the North Sea, the dependence is much lower, at 57 per cent and Odell does not discount the possibility that their dependence would drop to 50 per cent by the turn of the century.

Also, while he acknowledged that oil production in the United States is set to decline slowly with a simultaneous modest domestic growth, this would be offset by the expected growth from the former Soviet Union region, Odell told the conference.

Hurdles to OPEC influence will come also from the non-OPEC developing world where the possibility of some nations emerging as major oil producers cannot be ruled out.

According to Odell, the Asian country of Vietnam and the Latin American country of Colombia are on their way to play a major role — the first as a result of a number of offshore finds and the latter as a result of the imminent large scale exploitation of giant fields already discovered.

The OPEC’s power, however, is not irreversibly on the decline, he said, raising the possibility that the oil cartel could hit back with a price slashing and heavy and timely investment in capacity expansion. Besides, the OPEC’s oil reserves cost less to produce than any other alternative supply.

“In many respects,” such developments could see “a return to the pre-1973 situation, when both Western Europe and Japan, as well as many developing countries, became heavily dependent on the Middle East for their oil needs”.

But, he said, the organisation will face strong opposition to any possible return to pre-1973 situation from other parts of the world.

Many countries would begin taking actions designed to protect their indigenous industries and thus restricting imports, he said. He explained that non Gulf OPEC countries would be threatened by such actions, compelling them to seek alliances and solutions which reflect their interests — but not necessarily that of OPEC as a grouping concern, Odell said.

Such a situation would eventually lead to an emergence of regional energy trading blocs based on a view of mutual economic and political interests between exporters and importers, he said, pointing out the foundation for such blocks have already been laid.

The first possible energy bloc could an extension of the North American Free Trade Area (NAFTA), now comprising Canada, Mexico and the United States, to include some Latin American countries like Ecuador, Colombia and Venezuela for example.

The second block would be in the Far East, including the Association of South East Asian Nations (ASEAN) and China — an oil producer — and the western Pacific rim, including Australia.

The third block, according to Odell’s theory, would be in Europe, bringing together East and West and even West Africa with which the 15-member European Union (EU) is already boosting ties.