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By Nehad Ismail

The Organization of Petroleum Exporting Countries is not likely to disappear in the foreseeable future.

The failure of OPEC to agree on an increase in production in its last meeting in Vienna earlier this month led many to believe that OPEC future is now in doubt. According to some observers the squabble and discord signalled the demise of the Cartel.

We have also seen a plethora of articles recently speculating about the irrelevance of OPEC and secretly wishing to see the collapse of the powerful oil cartel. I would say that a single bad meeting or failure to agree on production levels does not necessarily mean that the 50 year old organization has reached the point of no return. Those gloating OPEC troubles base their argument on the mistaken assumption that OPEC is responsible for all the energy problems in the world and for the shortages. Worse still they blame OPEC for the high prices, deliberately ignoring or down-playing the geo-political factors affecting the oil producing regions of the world and the Middle East in particular. They tend to forget to mention the rising demand of China, India and Japan. Japan’s demand for oil has actually increased after the Fukushima Daiichi nuclear plant was severely damaged by the 11th March 2011 earthquake. Also they turn a blind to the role played by hedge funds and speculators. It is true that supplies are tight, but there is enough oil out there to meet the demand.

Irwin Seltzer, a business adviser and director of economic policy studies in the Hudson Institute writing in the London Sunday Times on 19th June, categorized the OPEC members as the enemies of America; the title of his piece was “Oil addiction puts us at the mercy of our enemies”. As far as I am aware, the biggest oil producer in the Middle East Saudi Arabia is an ally and a friend of the USA. Apart from the two maverick members Iran and Venezuela whose anti-American rhetoric may qualify them to be considered enemies, most of the OPEC members are either friends of the USA or have some security agreements with it.

Whereas Pierre Tristam; the Chief Editor of Middle East Issues, an off-shoot of the New York Times owned “About.Com” Website, wrote an article on June 10th about the debacle of the OPEC meeting in Vienna earlier this month. The provocative caption of his article reads: “Is OPEC still Relevant?” Pierre argued "It makes me start to wonder, why does anyone want to be in OPEC anymore? Why pay the millions in dues and go to these meetings where the decisions don't even matter?" Then Pierre leaves the reader with a challenging question: Is OPEC still relevant?

In answer to the question, I would say that whether we like it or not, OPEC is here to stay. So-called experts predicted its demise in the 1970s and also after 11/9 2001 etc.

The fact is that OPEC does not only serve the interests of its members but also the interests of non-Opec oil producers.
If OPEC produces around 32 million barrels per day, the combined daily total production of the non-Opec producers is in excess of 50 million barrels. I like to ask why don’t the non-OPEC producers work together as a rival cartel to OPEC producers and manipulate production to force the prices down. Why don’t they flood the market with the crude stuff?

The frankly brutal fact is that the non-Opec producers in Russia, Mexico, Norway, the Gulf of Mexico, Texas and even the marginal operators in Tulsa Oklahoma and Louisiana are skimming huge profits on the back of OPEC. In other words, they are enjoying the free ride aboard the OPEC Wagon of high prices. When it suits them they criticise OPEC publicly on CNN, but they don’t tell you that they secretly support to the hilt OPEC’s policy of controlling production and keeping the prices high.
I would suggest they form their own cartel and call themselves HYPOC (Hypocritical Oil Cartel).

Take Russia for example which is a big non-OPEC producer. In theory it can undermine the OPEC Cartel, but it has managed to stay outside the organization but enjoyed the benefits of OPEC’s policies to control production and keep the prices high.

Does OPEC have a future?

A report by Intelligence Quarterly in September 2010 concluded that despite, technological and environmental challenges and divisions among the OPEC members, OPEC will continue to remain a major force in the global market.

It is true that OPEC’s share of global oil output has fallen from 50% in 1970 to less than 40% in 2010, but OPEC members still hold 80% of the World Crude Reserve. In the absence of viable cheap alternatives, Oil will remain King in the foreseeable future.

Nehad Ismail is a London-based commentator on Middle Eastern Affairs. He contributed this article to Ammon News.