Trump and OPEC

From one moment to the next, President Donald Trump sharply criticizes OPEC, especially the Arab Gulf states, unless it supports lowering oil prices, as if OPEC possesses a magic wand and can say to the oil market, “Be,” and it will be! It is strange that this comes from a businessman who understands market forces, particularly the law of supply and demand, and the role of speculators and all of the other factors that influence the trajectory of markets, especially the global oil markets, which are very sensitive to geopolitical and environmental factors, let alone market factors themselves.

Throughout the history of OPEC – from its founding until now – it has played a pivotal role in balancing the market in order to stabilize the global economy by not subjecting it to any shocks that might affect the member states in the region, with the exception of some instances in which the market slipped from OPEC’s control because of serious political and security factors, such as those that arose during the October War between the Arabs and Israelis in 1973, the Iraq-Iran War in the 1980s and the Iraqi invasion of Kuwait in 1990.

In spite of that, OPEC has had a major positive role in stabilizing both the production and price of oil. In the process, OPEC has been a flexible producer, increasing or reducing production in accordance with the demands of the market and the global economy in general. OPEC is still playing this active, flexible role following the recent drop-off in Iranian oil exports, which have been stopped or reduced in accordance with American sanctions that will go into effect at the beginning of November. Some OPEC nations – Saudi Arabia, the United Arab Emirates, Kuwait and Iraq (in cooperation with Russia) – have increased their production to 32 million barrels per day, exceeding their 30 million barrel production ceiling. Russian production has also increased by half a million barrels per day. That covers all Iranian oil exports, an estimated 2.5 million barrels per day, even though these exports have not completely stopped yet.

Nevertheless, oil prices have risen to $85 per barrel, which is the highest rate since 2014. This increase came primarily as a result of technical factors, including the decline in Venezuelan oil production and the impact of hurricanes and storms on some production areas. These are temporary factors. We also cannot rule out speculation, which President Trump understands because he is a businessman, as evidenced by the drop in oil prices to $80 per barrel at the beginning of this week.

Even in situations like these, OPEC nations, in cooperation with Russia, are trying to rein in prices. The UAE, Saudi Arabia, Kuwait and Russia announced that they will increase their production from now until the end of the year. The production of both Saudi Arabia and Russia exceeds 10 million barrels, and the production of both the UAE and Kuwait exceeds 3.5 million barrels per day. That confirms the desire of these countries to stabilize prices and consequently the global economy, which will make up for the freeze on Iranian oil exports as well as the shortfall resulting from the decline in Venezuelan production.

What more does President Trump want? Everyone knows that the OPEC countries, particularly the Gulf states, are the most interested in stabilizing prices and markets because of the reliance of their economies on oil exports. Any disruption or violent shift that harms the markets will affect the OPEC nations immediately.

For these reasons, the U.S. president should be thanking OPEC instead of blaming it in order to ensure its continued cooperation for the sake of guaranteeing the stability of the global economy, especially because OPEC members take the interests of oil consumers into consideration alongside their own interests as oil producers.