OPEC+ pact helped stabilise oil prices, then Russia invaded Ukraine

Since 2016, the oil cartel, the Organisation of Petroleum Exporting Countries (OPEC), and Non-OPEC allies including Russia have been in a pact that restrained production helping to boost prices.

From 2014 to early 2016, oil prices were on a free fall. Producers were outdoing themselves to bring volumes into the market. OPEC went above its market share of 30m barrels per day (bpd). Venezuela and Russia were pumping with fury and prices found a floor below $30 a barrel.

By early 2016, Russia and oil producers began to warm to the idea of cooperation. Alexander Novak, Russia’s Energy minister met his counterparts from Saudi Arabia, Venezuela, and Qatar in Doha and began talks to implement cuts.

The pact faced a hurdle in April 2016 when they wanted to sign the final deal. Saudi Arabia wanted Iran to participate in the cuts, and Tehran’s reluctance resulted in the collapse of the agreement.

However, the deal was rescued after a meeting between the Saudi Crown Prince Mohammed bin Salman and Russian President Vladimir Putin on the sidelines of a G-20 meeting in China in September 2016. That was instrumental in bringing Russia on board to support the OPEC, non-OPEC oil curbs.

After some high-level committee meetings and much wrangling, the Algeria accord became an agreement signed in late 2016, after Russia exerted pressure on Iran to play ball. In December, non-OPEC producers joined and everyone agreed on a collective cut of 1.8 million bpd.

Read also: Nigeria’s oil output dipped by 10% to 1.26m bpd in February — OPEC

Every year since 2016, the accord has largely held. OPEC+ succeeded in managing the market when oil prices were down and when they recover. Some countries including Nigeria have at one time pumped more than allowed at other times they have failed to meet their quota. But the major outline of the deal has largely remained in place.

Until February 24, when Russia invaded Ukraine and roiled the global oil market. A market that survived a raging pathogen that brought demand to a 20-year low is troubled once again and the OPEC+ alliance appears to be hanging by a thread.

Sanctions imposed on Russia by Western countries are threatening over 4m bpd of production. While Russian energy has not been sanctioned, trade in the commodity is feeling a strain.

Some Russian banks have been kicked off SWIFT, a global settlement system, the Russian central bank is facing sanctions, hampering the ability to settle debts. Traders have stopped buying Russian oil and Europe is seeking to wean itself off Russian gas.

“The ongoing shift inside OECD countries, especially the EU, the UK, and the U.S., to wean themselves off Russian energy supplies, is dramatic and could prove to be influential in isolating Russia from the wider energy market,” noted Cyril Widdershoven, a global energy market analysis.

Western countries are wooing OPEC to raise production to counter rising pricing but OPEC is wary to throw Russia under the bus, considering its support was crucial to the pact.

British PM Boris Johnson had flown to Saudi Arabia to discuss possible investment agreements, but mainly to push for additional oil volumes from the Kingdom. But the Saudis have been cautious.

OPEC is unwilling to change its production and export strategies and is wary of doing anything that will endanger its strong relationship with Putin.

OPEC always maintains a healthy spare production capacity it could use to influence oil markets, with Saudi having over 2m bpd spare capacity, but it may not consider it strategic to plug a gap that serves as its chief source of geopolitical power.

Western in recent times have been divesting away from countries like Nigeria and Angola due to above-the-ground problems, and environmental activists have pressured boards of oil companies to cut down emissions and production, so without a swing producer to plug this gap, a global energy crisis may be afoot.