Page 2 of 2 Win-win opening for Russia and OPEC
By W Joseph Stroupe
Russia's coordination with OPEC would also help to guarantee that the cartel's
members themselves stick much more faithfully to production cuts because of the
pointedly increased collective leverage over the markets that all the producers
would enjoy. Consequently, Russia is just what OPEC needs now. And Russia needs
OPEC as never before.
In view of the foregoing, Russia can play the powerful role of
leverage-enhancer for OPEC as well as for itself. It's a win-win situation for
Russia and for OPEC. Now, Russia is being ushered into the position as the
globe's key producer because it alone has the opportunity, by its actions, to
solidify OPEC, itself and perhaps other non-OPEC producers into a more formal
axis with
restored and enhanced production/pricing credibility and potent leverage over
the global markets.
Saudi Arabia lacks such leverage, having failed to unite OPEC's membership on
meaningful production cuts to defend OPEC's severely damaged credibility and
oil's price. Russian moves could be the catalyst that finally brings the bulk
of the globe's producers into a more formal and potent axis.
Evidence indicates Russia has become fully aware of its golden opportunities
here, and if history is any guide, Russia won't miss an opportunity to further
extend and solidify its energy-based global reach. The upcoming OPEC meeting in
Algeria on December 19, where Russia's formal draft proposal for OPEC-Russia
cooperation will be considered, is the meeting to watch.
The profoundly negative effects of the rapidly deepening oil price crisis is
bringing Russia to OPEC's side in order to defend its own vital economic
interests, which are swiftly becoming virtually inseparable from those of OPEC.
That fact is a new development of enormous implications for the West.
Right now, Western leaders are smugly sniping at Russia over its apparent
inability to continue to finance its anti-Western ambitions and agenda. They've
congratulated themselves on how, as they see it, evil has come around to the
power that recently acted in an evil way by invading Georgia.
However, the very "evil" that Western leaders are happy to see hit Russia - the
oil price crisis - is what will drive the emergence of a new, truly global and
more formal axis of oil, which is an "evil" that will plague the West,
potentially with indescribable pain. When Western leaders keep wishing for an
oil price collapse that will plague such oil-producing states as Iran,
Venezuela and Russia, they should be careful what they wish for because they'll
also get some unintended consequences they aren't remotely prepared for. How
so?
A new global axis of oil
The global situation that has now developed makes real cooperation and
coordination between OPEC and Russia both likely and strategically beneficial
for all the parties to the impending agreement. By designing and constructing
an architecture for oil price stability within a mutually agreed-upon price
band, say $80 to $100 per barrel, the axis avoids both price collapses and also
avoids the harmful speculative price run-ups like that experienced this past
summer when the price nearly breached the $150 mark.
The desired price stability can only be accomplished by in-tandem production
coordination, in conjunction with a new regime of pricing oil in a basket of
currencies rather than in the US dollar alone. Any new pricing scheme would
also need provisions for limiting the role of speculators, whose unregulated
participation is responsible for causing wild price swings to the extremes. In
the environment of increasing sentiment for regulation of the free markets in
the painful aftermath of the toxic global effects seen from America's grossly
under-regulated markets, such restrictions on speculators should be relatively
easy to push through.
It appears that the parties are virtually ready to take the first step, that of
coordinated production levels. The second step, that of reforming the pricing
structure, is more likely to be implemented down the road a short distance if
and when the US dollar resumes its strategic slide.
Russia and OPEC are engineering a workable solution to the oil price crisis.
There exists something of value for all parties to the impending agreement, and
by working together, out of necessity, to craft a new/expanded oil producer
structure, the fractious nature internal to OPEC, and that between OPEC and key
producers like Russia, can be moderated to an extent that facilitates a
reversal of the crisis. All the parties know they will have to earn the
confidence of the markets by sticking to production level agreements - that is
the challenge that rests before them in their unprecedented undertaking.
But success of the venture will mean success and huge benefits for every member
of the new axis. Likewise, failure of the venture due to infighting and refusal
to stick to production level agreements will mean a continuation of the oil
price crisis, and every producer loses in that case. Such a failure cannot be
afforded in the current global situation. Hence, the prospects are very good
for the early emergence and rapid success of a new, more formal global axis of
oil.
As OPEC and Russia deepen their mutual coordination to defend oil's price, a
new and more formal global axis of energy will incrementally arise. The era of
producer semi-independence is rapidly being replaced by a new era of deeper
producer interdependence. As producing states progressively come to understand
this reality, they will construct more formal organizations and reformed market
infrastructure designed to more effectively serve their common interests.
Those counting on the decline of the likes of Russia, Iran and Venezuela are
mistaken on a grand scale. The recovery and the securing of their economic
fortunes and anti-Western geopolitical agenda are already in the making. Both
OPEC and Russia, each the butt of repeated jokes in the West, are about to have
the last laugh at the expense of their many ridiculers.
W Joseph Stroupe is a strategic forecasting expert, the author of two
books with a third, entitled The West Awakens Thunderstruck Under the
New World Order Conceived by Its Rivals, currently in the works, and he is the
editor of Global Events Magazine online at www.GlobalEventsMagazine.com
(Copyright 2008 Global Events Magazine, All Rights Reserved.)
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