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Petrostates in a post-carbon world

“This is our biggest compliment yet.” Greta Thunberg answered with these words to the comments by OPEC’s Secretary General Mohammed Barkindo that climate concerns were becoming the organization’s “greatest threat.” An increasing number of people view fossil fuels, and petroleum in particular, as the key cause of climate change and thus as the greatest threat to Humanity.

The Organization of the Petroleum Exporting Countries (OPEC) will turn 60 in September and is facing unprecedented challenges as oil demand is experiencing its most significant drop since petroleum become the world’s most important primary energy source. The price of petroleum is falling due both to booming oil production, particularly in the United States where the shale industry has increased production from 5 million barrels a day in 2008 to nearly 13 million barrels a day in 2019, and reduced demand because of COVID-19.

When OPEC was created in 1960 its five founding members, Iran, Iraq, Kuwait, Saudi Arabia and Venezuela, extracted almost all of the petroleum exported globally. Oil production in these countries was entirely controlled by an oligopoly of Anglo-American oil companies. Petroleum was just about to become the most important global energy source, overtaking coal in the midst of an age that saw a massive boost in the consumption of fossil fuels and thus in the release of CO2 emissions.

Today the Vienna-based organization has relatively smaller share of global oil production (30%) and of global exports (about 40%), even though its members still hold 80% of global crude oil reserves. Most of the oil production in petrostates is now controlled by national oil companies that compete on equal terms with international oil companies such as Exxon or Shell. A key difference from 1960 is that today climate scientists, environmental activists, policy-makers, and financial institutions are actively promoting a transition away from fossil fuels. Not only are OPEC countries relatively weaker in the global oil market, thanks to the rise of shale oil in the United States, they are challenged in their very survival as petrostates. This is because these nations are vitally dependent on the exports of a natural resource the demand for which might have peaked this year..

When viewed through the lenses of the Anthropocene and of rising CO2 emissions, the history of OPEC in the 20th century is far more interesting than the familiar story of rich oil sheiks with their shameless wealth. OPEC has in fact been the only organization that made an effort to control and reduce oil production. Very few people know today that OPEC’s founding father, Venezuelan Petroleum minster Juan Pablo Pérez Alfonzo, came to define petroleum as the “Devil’s Excrement” and was a consistent promoter of conservationist policies for the Venezuelan oil industry. Pérez Alfonzo kept a rusty British Singer automobile in the garden of his villa in Caracas as a reminder of the dangers of consumerism and waste.

John Maynard Keynes had repeatedly warned about the need for global coordination to stabilize the price of commodities. Stable oil prices are important to plan a speedy transition away from fossil fuels, while avoiding at the same the political and economic collapse of oil-producing countries. The United States, as well as OPEC and non-OPEC states such as Russia, Mexico, and Brazil need to begin serious discussion to pro-ration oil production at a global level.

Whatever its format and however difficult it may be to change a neoliberal ideology that rules out state-led regulation of production, the time for a global dialogue on production levels and oil prices has come. Deregulation of the energy market must give way to a new era of regulation of the oil industry at both national and international levels.

The alternative will leave commercially oriented oil companies, both national and international, free to engage in a destructive price war that will maximize environmental degradation and squander natural resources. This will ultimately endanger decarbonization efforts (car-markers are already pressing governments to relax emissions standards) and increase political and economic instability in OPEC countries that are key regional actors.

Featured Image Credit: by Zbynek Burival via Unsplash

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