OPEC Plus

Over the last quarter century, oil-exporting countries, in particular OPEC members, have been exposed to extreme changes in the oil market and global geopolitics. With volatility stemming from booming shale oil production in the US, the intensification of international debate and policy to curb carbon emissions, a collapse in consumption during the Covid-19 shutdowns, and heightening geo-economic fragmentation, exporters looked to new avenues for cooperation.

The process of realignment began in 2000, when the Second Summit of the Heads of State and Government of OPEC came together for the first time since 1975. Leaders relaunched the organization with the aim of consolidating its disparate factions. Since its inception OPEC has witnessed a tension between its identity as a “political” organization advancing the interests of developing countries and the global South, and an “economic” association for maximizing the revenues of member countries. This dual purpose would powerfully resurface in 2007, when the “economic bloc” led by the Gulf Monarchies grappled against a “political bloc” led by Venezuela and Iran that was outspokenly critical of US imperialism.

The year 2016 brought a historic shift: a rapprochement between Saudi Arabia and the Russian Federation produced OPEC+, a larger and looser cooperation agreement focused on defending prices. Though it consolidated under OPEC’s “economic” umbrella, the rapprochement nevertheless signaled a potential shift in the global balance of power.

The following is an outline of the origins of this new configuration and its prospects for coping with a new set of overlapping geopolitical and economic challenges. OPEC+ represents a unique model for global cooperation among resource exporters from the global South and it involves key members of BRICS. Whether such alliances can be forged around different natural resources and critical minerals or in different political circumstances remains to be seen.

OPEC and Russia in the new century

The early 2000s arguably represented a new “golden era” for OPEC. With the election of Hugo Chavez in 2000, Venezuela began to reverse the “oil opening” (apertura petrolera)—in which the national oil company Petróleos de Venezuela, S.A (PDVSA) jeopardized the nation’s fiscal regime and weakened control of the oil sector by courting foreign investment. By the end of the 1990s, Venezuela was “overproducing” by 800,000 barrels per day (bpd) and its oil technocrats wanted the country to leave the OPEC it had helped found. A young and charismatic leader, Chavez and his oil minister Rafael Ramírez (this article’s co-author) focused on strengthening the organization, reestablishing the oil fiscal regime, and allowing PDVSA to retake operative control over production under a policy dubbed “full oil sovereignty.”

With new leadership in Venezuela and a favorable global market, OPEC began to act again. Member states introduced new price bands and committed to a renewed effort to respect quotas. Meanwhile, the tight oil market of the early 2000s gave the producers room to maneuver. One of its most notable interventions was an extraordinary cut of 4.2 million barrels per day (mbd) decided at the 2008 Oran Meeting in Algeria, the largest gathering in the history of the organization. The cut allowed the price to recover from its dizzying fall of more than 40 percent after the financial crisis in the US. That year, the price of oil reached a historic high of nearly $150 per barrel.

The world’s second largest oil exporter would not join the party. This was partially a legacy of the Cold War, when political differences between the Soviet Union, Iran, and Saudi Arabia were pronounced. The Soviet Union saw itself as an industrial power having little in common with raw materials exporters. An active political actor in the Middle East and a close ally to some of the secular and socialist Arab powers, the USSR was viewed as a potential threat to the internal stability of the Gulf monarchies.

There had been a short-lived cooperative effort, led by Mikhail Gorbachev, to dampen the effects of the oil counter-shock of 1985, but no agreement was achieved. And the prospect for working with OPEC seemed to permanently fade once the dissolution of the Soviet Union weakened state control over the Russian oil sector. At the time, the expectation of the EU governments and the US was that Russia would be fully integrated into a free Eurasian energy market—a kind of El Dorado of fossil capital, with capital flowing East and resources flowing West. The spirit of the time was visible in the signing of the Energy Charter Treaty (ECT) in 1994, followed by Russia’s inclusion in the G7 in 1998.

Throughout the 1990s, Russia’s oil sector was regionalized and privatized. By 2002, 80 percent of Russian oil production ended up in private hands (compared to 10 percent in the mid-1990s), a policy with severe consequences for the country’s income and general wellbeing. Between 1991 and 1996, Russia’s GDP declined by 40 percent, poverty increased dramatically, and state institutions were starved for taxes. Capital flight was estimated at $17 billion annually.

This was the context in which Vladimir Putin emerged as the dominant political figure in Russia. When Boris Yeltsin named Putin president in 1999, the latter already had a vision for the energy sector: mineral resources, he held, ought to ultimately support state power. The Russian state reasserted its role in the oil sector after the privatization spree of the 1990s, forcing oil companies to pay export taxes and royalties and recommencing direct state intervention in oil production. Government takeovers and forced sales of major private firms—including the infamous case of YUKOS—characterized the early 2000s.

By the mid-2000s, ROSNEFT, Russia’s state-controlled oil company, was responsible for almost half of the country’s oil production. Importantly, private and international oil companies maintained a decisive footing in the oil sector (until 2022, for example, BP still owned one-fifth of ROSNEFT). There remained significant domestic and international pressures to treat oil as a commodity, unrestricted by international agreements that could limit Russian production.

OPEC did try to coordinate with other oil exporting countries, especially outside the OECD. At successive conferences after 2003, producers such as Norway, Mexico, the Russian Federation, Syria, and Oman were invited as “observer” countries. But the organization was divided on how to deal with Russia. Saudi Minister Ali al-Naimi, one of the most influential ministers in the group and the first Saudi head of Saudi ARAMCO, insisted that Russia would not engage in credible production cut agreements, while Venezuela, Iran, and North African countries advocated closer ties to the enormous producer country.

In 2005, an intermediate solution was reached to create a technical body for dialogue with the Russian Federation at the level of the OPEC Secretary General. At the 2007 OPEC Summit in Riyadh, Chavez vehemently advocated for strengthening the political role of the organization, citing its contribution to the fight against poverty in the developing nations, and questioned the persistent centrality of the dollar in international markets. The “political bloc” then proposed the establishment of a basket of currencies to replace the dollar for oil transactions, a measure that was hotly debated and ultimately set aside due to opposition from the economic bloc of the Gulf Monarchies led by Saudi Arabia (a similar proposal had already been unsuccessfully advanced in the 1970s). The need for OPEC to focus on maintaining market stability, however, was reasserted.

The shale revolution reaches OPEC

OPEC experienced a dramatic change in course during the early 2010s. The Arab Spring, NATO’s intervention in Libya, and the death of Hugo Chavez weakened countries in the political bloc, and indirectly strengthened the position of the monarchies. At the same time, a technological revolution rocked the oil industry, with profound geopolitical implications.

In 2006, US net oil imports constituted 60 percent of total consumption or 13mbd; by 2019, this figure had fallen to just 3 percent. The change was due to the shale oil boom, a development as significant as the North Sea discoveries of the 1970s. With cheap financing available in the post-financial crisis low interest rate regime, the world’s most powerful military-economic power also became, once again, the world’s leading oil and gas producer. The strategic dependence on other nations’ oil, a feature of the US political economy since 1948, was significantly reduced (this year, the US net imports of crude ore are predicted to be the lowest since 1971).

From the point of view of the OPEC General Secretariat, until 2012 shale oil production was not considered a structural factor directing medium-term change in the market. In fact, at its December 2011 meeting, OPEC had kept its production level fixed at 30 mbd. But soon the explosive growth of production from the US shale fields caught the interest not only of OPEC, but also of the Russian Federation.

In October 2013, a high-level meeting between OPEC and Russia took place in Moscow, during which one of the two main topics was the assessment of the “development of tight oil and shale gas in the USA.” The following month, the 164th OPEC Ministerial Conference discussed the issue and asked the Secretary General for a mid-term market update, including the impact and prospects of shale oil production in the US. The resulting report showed an increase in US production by 1.14 mb/d in 2013, and a further increase of 0.95 mb/d in 2014. In a closed meeting with the ministers, a presentation shown by Secretary General Abdallah Salem El-Badri illustrated that US oil production from tight formations stood at 3.29 mb/d in 2013 and projected an increase—in both tight oil and shale oil—of 2.61 mb/d, reaching a total of 5.9 mb/d by 2019. OPEC thus acknowledged that shale oil would increase significantly, based on improved drilling efficiency and new wells, but also estimated wrongly that tight oil production would peak in 2019, at 5.9 mb/d, and then begin to decline.

The ministers thought that these volumes could eventually be absorbed by rising global demand, which was expected to continue to rise until 2015, exceeding the 90 mb/d threshold.

By the time OPEC began to react, it was too late. From mid-2014 onwards, oil prices began to fall against rising global supply and slowing Chinese demand. On the sidelines of the 165th Ministerial Conference in November 2014, Venezuela promoted a closed-doors meeting between representatives of Russia, Mexico, Venezuela, and Saudi Arabia. Mexico was represented by Energy Secretary Pedro J. Coldwell, Saudi Arabia by Naimi and the Saudi OPEC Governor Mohammed al-Madi, Venezuela by Oil Minister Ramírez, while Russia was represented by the Energy Minister Alexander Novak and Igor Sechin, the president of ROSNEFT. The presence of Sechin, who was close to Putin, was notable.

After an introduction by Ramírez, the floor was left to the guests. Coldwell declared that Mexico could not make production cuts. Then Sechin, not Minister Novak, took the floor and stated that Russia would also not cut. Naimi’s response was swift: “It looks like nobody can cut, so I think the meeting is over.” Naimi was convinced that Saudi needed to maintain an export floor at 7 mb/d, and did not want to repeat the experience of the early 1980s when Saudi, acting as “swing producer,” saw its output drop to 2.5 million barrels in a failed effort to defend oil prices. To the Financial Times, Naimi said: “If I reduce, what happens to my market share? The price will go up and the Russians, the Brazilians, US shale oil producers will take my share.”

With no commitments from non-OPEC producers, OPEC extended the previous production ceiling, unchanged since 2011, in the belief that market forces would eventually weaken high-cost producers. A December 2014 cover of The Economist depicted a vicious oil price contest—“Sheiks versus Shale”—that might tip the world into oil surplus. Market operators immediately sensed the disagreement among top exporters while US production increased without pause. From mid-2014 to early 2016, prices fell by 70 percent.

The creation of OPEC+

The end of 2014 delivered new political crises for OPEC members. The recently inaugurated Venezuelan president, Nicolás Maduro, shook up his Ministry and oversaw a collapse in oil production. Sanctions on Iran hobbled its oil output. Libya was engulfed in civil war, and Algeria entered a period of political instability. OPEC was weakened and internally unbalanced. The 2014–2016 fall in oil prices had an impact on all oil-exporting countries. In Russia and Saudi Arabia the economic damage was coupled with significant political changes.

In 2014, Russian tax revenues from hydrocarbons fell by 40 percent. Russia’s foreign exchange reserves fell by more than 20 percent as the ruble depreciated. This was compounded by the enactment of the first sanctions against Russia over the annexation of Crimea and its support for separatists in Eastern Ukraine. In response to the annexation, G7 leaders cancelled the planned summit in Sochi, expelled Russia from the G8, and terminated Russia’s application to join the International Energy Agency (IEA).

Meanwhile, Putin had begun to favor direct intervention in the Middle East: In September 2015, Moscow sent military forces to Syria to support the Assad government—the first time Russian troops were sent to a foreign country since Afghanistan.  With Western relations strained, Russia shifted focus toward greater self-sufficiency, also by promoting agricultural exports favored by a depreciated ruble. For a country that remained dependent on oil and gas for 36 percent of its budget revenues, asserting some degree of control over oil markets became an essential tool for strengthening economic resilience in the face of mounting external challenges.

The year 2015 similarly saw major changes in the Saudi Kingdom. The death of King Abdullah brought to power Mohammad bin Salman (MBS), the sixth son of the twelfth son (Salman bin Abdulaziz) of Saudi Arabia’s founder. MBS’s father, Salman bin Abdulaziz, became king amid mounting external threats. With the Iranian-backed Houthis capturing Yemen’s capital in March, the lifting of sanctions against Iran following the signing of the US-backed nuclear deal (JCPOA) in July 2015, and oil prices continuing their fall, MBS was appointed Defense Minister and Head of the Royal Court. He inaugurated the Supreme Council for Economic Development, as an organ of the Council of Ministers to oversee economic policies.

MBS pursued a muscular foreign policy, ordering a military intervention in Yemen—Saudi Arabia’s first direct military intervention abroad—and taking an increasingly anti-Iranian stance, culminating in the 2016 execution of Shia cleric Nimr al-Nimr, which triggered attacks on the Saudi embassy in Tehran and the subsequent severing of diplomatic ties

Alongside this active foreign policy was an economic strategy aimed at diversifying the Saudi economy away from over-reliance on oil. Domestic energy prices were increased, new indirect taxes were introduced for the first time on non-essential goods, and a privatization plan was proposed that crucially included Saudi Aramco. Speaking to The Economist in 2016, MBS likened his own approach to “Thatcherism,” envisaging massive new investments in tourism, technology, and infrastructure. The Crown Prince was enthusiastic about privatizing Saudi ARAMCO, which would benefit both the company and Saudi citizens: “It’s in the interest of the Saudi market, and it’s in the interest of Aramco, and it’s in the interest of greater transparency,” he declared. In April 2015, Minister Naimi was removed from ARAMCO’s Board of Directors.

MBS’s diversification strategy was rebranded Saudi Vision 2030 and announced to global audiences in June 2016, positioning a Public Investment Fund (PIF), enhanced with assets from the privatized Saudi ARAMCO, as “an essential mover on the Planet.”  Crucially, the entire diversification project ultimately relied on increasing oil prices to fund investments, attract foreign capital, and boost PIF’s capitalization. Saudi Arabia faced severe budget deficits as increased military spending came to constitute nearly 25 percent of its budget.

With rising financial pressures, both powers were poised for negotiation. In June 2015, MBS made his first visit to Russia during the St. Petersburg Business Forum. In April 2016, Qatar, which held the rotating Presidency of OPEC, convened a meeting of selected OPEC and non-OPEC governments to discuss a production freeze. Russian delegates, as well as Saudi Arabia and others, supported the initiative, except for Iran, which was eager to regain its pre-sanctions production levels. Naimi first accepted the production freeze, but a phone call from Riyadh imposed a different position. A freeze would only be feasible if all producers agreed without exceptions.

Days later, Minister Naimi, who had been consistently skeptical on a deal with Russia, was reassigned as “Minister without portfolio.” His successor, Khaled Al-Falih, quickly established a cooperative relationship with the Russian Energy Minister Novak. In September 2016, Putin and MBS instructed their ministers to develop a joint action plan at the G20 in Hangzhou. Novak announced the cooperation, calling it a “a new stage in relations between OPEC and non-OPEC countries.”

The next step was taken at an OPEC Extraordinary Meeting in Algiers on 28 September, where a tough and lengthy debate centered on Iran. By then, the Saudi position had softened compared to the previous Doha meeting and the fourteen participants finally agreed to limit production, but allowed that Iran would not be constrained by the decision. The “Algiers agreement” marked the beginning of high-level consultations between OPEC and non-OPEC representatives, including Brazil, Mexico, and the Russian Federation.

At the end of November, OPEC finally decided to cut production, and during the following Ministerial Meeting of OPEC and Non-OPEC countries in Vienna on December 10, the so-called Declaration of Cooperation (DoC) established a new partnership that would soon become known as OPEC+. A recent official history of OPEC considers the DoC “as significant in OPEC’s history as its founding on September 14, 1960.” Non-OPEC members participating in the DoC (Azerbaijan, the Kingdom of Bahrain, Brunei Darussalam, Equatorial Guinea, Kazakhstan, Malaysia, Mexico, Oman, the Russian Federation, the Republic of Sudan, and the Republic of South Sudan) agreed to cut 558 tb/d, while OPEC countries would cut 1.2 mb/d. A Joint Ministerial Monitoring Committee (JMMC) would assess compliance with the production adjustments. The move boosted oil prices, while global (US) shale oil production remained at around 5.3–5.8 mb/d, before rising again sharply from 2018 onwards. According to Kirill Dmitriev, the CEO of the Russian Direct Investment Fund, “the first OPEC+ agreement generated an additional 130 billion dollars for the Russian budget until 2019.”

The new oil order

Just a few years after the creation of OPEC+, the international oil market was impacted by two extraordinary events that severely tested its unity: Covid-19 and the Russian full-scale invasion of Ukraine. The economic shutdown in the early weeks of the Covid-19 pandemic crashed the oil market to an extent not seen since the Great Depression. In an unprecedented move, and after an internal rift between Russia and Saudi Arabia, the US openly called on OPEC+ to intervene in April 2020. The OPEC+ production cut, the largest in history, was a decisive step in stabilizing the oil market, reducing the oversupply by a volume equivalent to the 10 mb/d drop in demand and initiating the draining of excessively high oil inventories.

The next shock was the war breaking out on Europe’s doorstep. Oil market alarms went off again, but now for geopolitical reasons. The US, the UK, and the EU, among others, imposed drastic economic sanctions on the Russian Federation. Agencies such as the IEA and experts at the Oxford Institute for Energy Studies projected an imminent 30–40 percent plunge in Russian oil production, putting it at 6–7 mb/d in the short term. In December 2022, the G7 countries imposed a “price cap” of $60 per barrel on Russian crude oil to limit its revenues and jeopardize the war effort.

The geopolitical risk factor triggered a jump in oil prices. Brent and WTI went from 94 and 91.5 dollars a barrel in February 2022 to 139 and 131 dollars a barrel in March. When, at the beginning of the Russian invasion of Ukraine, the main consuming countries declared their intention to replace Russian oil and gas imports with volumes from other producing countries, the OPEC+ countries, especially the Gulf monarchies,  maintained their unity and even reduced production in solidarity with Russia. Given the tremendous pressure placed on Riyadh by the EU, UK, and US, this unity was surprising. As if to further underline the cohesiveness of OPEC nations, Saudi Arabia started to normalize its relations with Iran in March 2023 and, together with other members such as the UAE and Iran, was also invited to join BRICS in 2024.

The Ukraine conflict triggered a reordering of the global oil market, with new customers and new suppliers. The oil market is a century old, with a well-developed and open infrastructure that can transport the resource over different routes to any destination. Unlike the natural gas market, there are hardly any physical constraints on oil’s transport. Therefore, when a supplier is displaced from a specific market these volumes can be directed to another market, satisfying demand until stability is reached.

OPEC+’s astounding unity meant that the conflict at the “gates of Europe” and the economic sanctions and restrictions on the Russian economy did not lead to the collapse of Russian oil production (even though they have weakened Gazprom as a natural gas exporter). What happened instead was a process of re-orientation of flows, particularly towards China and India. The consolidation of a new East-East hydrocarbon axis, in place of the old East-West axis, is underway.

The OPEC model?

OPEC continues to face both contingent (see the recent effort to punish Kazakhstan for exceeding output quotas) and existential challenges. Most notable is the possibility of “peak oil demand” triggered by energy decarbonization, slower global growth, or a combination of the two. OPEC has tried to regulate the flow of oil, potentially a “conservationist policy” for natural resources, as advocated by OPEC founder Juan Pablo Pérez Alfonzo who thought of the organization as an “ecological force.” But, to this date, neither OPEC nor OPEC+ have ever engaged in international negotiations to plan a global reduction of oil and gas production. The same is true for the OECD countries, and for the world’s largest oil producer, whose President has declared an “energy emergency” that must be met with boosted production under the slogan of “drill, baby, drill.”

Frenzied discussion of minerals crucial for electronics and green tech production have led to speculations about an “OPEC for Lithium,” or for copper exporters who have in the past tried (and failed) to coordinate production. Prospects for such projects will depend, as for OPEC+, upon their ability to navigate the tension between economic and political goals, their autonomy from liberal “resource governance,” as well as their willingness to exert sovereign control over their natural resources.

Key OPEC+ members, such as Russia, Iran, and the UAE, are also members of BRICS (Saudi has been invited, but has not yet officially joined the club), an organization that stands for the reform of western-led global economic governance. But the weakening of those OPEC members (such as Algeria, Iran, and Venezuela) that in the past had endorsed efforts to marginalize the dollar or supported development and anti-poverty measures in the South indicate a resistance to engaging in global economic reform. Nominally, OPEC+ is mostly about “economics” (oil prices) and, to a lesser degree, about great power politics (Saudi/Russian diplomacy). But as a coalition of “sovereign landlords,” OPEC+ members may inevitably be driven to antagonize commercial capital, support global struggles to restrain finance, traders, and multinationals, and endorse efforts to preserve natural resources for the benefit of future generations. The fact that OPEC+ retains its solidity despite enormous internal differences and turbulent geopolitical conditions indicates the potential of international alliances of countries from the global South to endure in the changing world order.

This is an adapted chapter from the forthcoming book, Energy Politics in a Turbulent Era, forthcoming from the University of Oslo.