In recent years, the Organization of the Petroleum Exporting Countries (OPEC) has encountered a series of challenges that have the potential to reshape its influence on the global oil market and pricing dynamics. The departure of member countries, a decline in the participation of key members in decision-making processes, and external pressures related to the global shift away from fossil fuels are among the pivotal issues facing the organization.
Historically, Qatar, Indonesia, and Ecuador were the initial countries to exit OPEC, and the recent departure of Guyana has raised concerns within the organization. While the exit of individual members might not significantly impact the overall world market supply, it is noteworthy considering OPEC’s historical influence in shaping oil prices.
One of the primary challenges confronting OPEC is the struggle to retain and attract new members. Despite repeated invitations, the organization has faced difficulties persuading other oil-producing nations to join its ranks. Guyana’s recent rejection of OPEC’s invitation underscores the challenge, signaling a trend where countries prioritize maximizing oil production and profits, particularly amid expectations of declining oil demand in the coming years.
The withdrawal of Qatar, followed by potential exits like the United Arab Emirates (UAE), poses a threat to OPEC’s cohesion. The UAE’s disagreement with OPEC, notably in relation to quota baselines and domestic production, could weaken the organization’s influence on oil prices, given that the Emirates is OPEC’s third-largest oil producer.
The second major challenge stems from the diminished role of three key members in OPEC’s decision-making processes for over a decade. Iran and Venezuela, both non-Arab founding members, along with Libya, have seen their influence wane due to U.S. sanctions and geopolitical changes. Their absence in quota discussions and oil production decisions may have weakened Saudi Arabia’s historically dominant position within OPEC.
Externally, OPEC faces a significant challenge in the global call for a transition away from fossil fuels. The recent COP28 in the UAE witnessed a strong push from numerous participating countries for a fossil fuel phase-out. Although the term “phase out” was omitted from the final communique, the agreement emphasizes a transition away from fossil fuels. This global sentiment, articulated by UN Secretary-General Antonio Guterres, poses a fundamental challenge to OPEC’s reliance on oil as an economic driver.
In response to these challenges, OPEC, in collaboration with ten non-OPEC oil producers (OPEC+), strives to maintain its influence in the oil market. However, the organization must grapple with internal discord and external pressures that threaten the historical power it once held in the world oil market.