Opec’s economic power is broken, says the unofficial historian of the oil industry, who has argued that the association of oil exporting countries has become irretrievably divided and is unable to reverse the current slump in crude prices.
Daniel Yergin, whose Pulitzer-prize winning book The Prize provides a comprehensive history of oil and power, said he believes the association’s economic prowess has been undone by its inability to agree on how to stop the oil crisis.
In an interview with the Financial Times, Mr Yergin, who is also vice-chairman of data provider IHS, said the recent disagreements among Opec members have revealed how weak the organisation now is.
Mr Yergin said: “The era of Opec as a decisive force in the world economy is over. It is clearly a very divided organisation.” Mr Yergin’s book, first published in 1990, dedicates several chapters to the rise and domination of Opec, the 13-member organisation that has caused sharp swings in the oil price by restricting or raising supplies since it was set up in 1960. But the 69-year-old argues the current oil slump has exposed the organisation’s inability to act in a unified way.
Since its peak in summer 2014, the price of a barrel of crude has dropped from $115 to below $40, hurting oil companies and major exporting countries. Mr Yergin described this as the worst downturn he has seen in his career — equivalent only to the slump in the mid-1980s.
Later this month oil ministers from Qatar, Russia, Saudi Arabia and Venezuela will meet in Doha to negotiate a deal to freeze crude oil output at January levels. There is no guarantee a deal will be struck, however.
Mohammed bin Salman, Saudi Arabia’s powerful deputy crown prince, said earlier this month a deal would only happen if Iran also signed up. But Iran wants to increase its output after sanctions were lifted in January as part of a nuclear deal with world powers.
The era of Opec as a decisive force in the world economy is over. It is clearly a very divided organisation
Mr Yergin said he did not think a freeze was possible until Iran clarified how much it could export. As for Saudi Arabia, Mr Yergin said it was thinking differently about oil.
“I remember when the operating code was: save the oil for our grandchildren. Now the grandchildren are in charge and they are looking at it in a very different way,” he said.
“They are not looking at it as precious resource . . . but rather asking how do you monetise it?”
Mr Yergin added, however, that he expected the price of oil to rebound from its current level.
“A lot of storage is filled up but we’re not at that point where there’s no place to put the oil and so I think this period will be the bottom,” he said. “It’s either in the second half of this year or early next year that you’d start to see the market more in balance.”