For a cartel, conducting business in the open does not come naturally. Closed-door meetings and secretive arrangements are the hallmarks of a system designed to control markets and wrong-foot competitors.
Yet at the Organization of the Petroleum Exporting Countries (OPEC) – the cartel that produces some 40% of global crude oil output – disputes that ought to be confined to its sprawling Vienna headquarters have begun to spill into the open.
In late February, Nigerian President Muhammadu Buhari visited Qatar to deliver a blistering message to his fellow OPEC members. Railing against sustained low oil prices – which some critics blame on the cartel’s overproduction – he argued that prices had become “unsustainable and totally unacceptable”.
Buhari is not alone in his frustration. The oil price slump, which saw crude fall to $30 a barrel earlier this year from what had seemed to become the norm at over $100, has exposed unprecedented fissures between the cartel’s wealthiest members and the smaller producers who have seen their economies decimated – among them Africa’s major oil producers.
Having seen their nations’ influence eroded and their concerns ignored, African critics are beginning to ask whether the cartel really has the continent’s interests at heart.
“African countries that are part of OPEC have no say and no control over OPEC’s policies,” says Damilola Olawuyi, director of Nigeria’s Institute for Oil, Gas, Energy, Environment and Sustainable Development.
“Despite the impact of price volatility on African countries, OPEC has maintained its stance and is hurting the economies of Africa.”
The continent’s struggle for influence within OPEC is not a new phenomenon. Decision-making has long been monopolised by members with the largest proven oil reserves and production capacity. OPEC’s four African members – Algeria, Angola, Libya and Nigeria – together account for just 8.8% of OPEC’s proven reserves. Compare that to Saudi Arabia – long regarded as OPEC’s undisputed hegemon – which controls 22.1% of reserves and dominates current output.
In the recent past, disputes between members were largely held in check by high prices and mutual prosperity. Between 2011 and mid-2013, crude fluctuated between a generous $80 and $115 a barrel. Yet entrenched disagreements over how to manage the slump have eroded OPEC’s legitimacy in the eyes of smaller producers – with many casting blame on the intransigence of Saudi Arabia. Determined to eliminate competition, Riyadh has refused to support cuts in output, gambling that low prices will force its increasingly threatening US shale rivals out of the market.
John Hall, chairman of energy consulting firm Alfa Energy and a frequent observer at OPEC meetings, says that African countries have no choice but to kowtow to the Gulf States.
“Really, they have to go with the flow. The difficulty they face is that Saudi Arabia controls OPEC and the rest have to follow. The African producers are caught now. The price is down and they can’t influence it. There is some hope that if they get into trouble OPEC will help them, but OPEC will not.”
For African producers, the economic impact has been severe. Nigeria, which relies on oil exports for around 95% of its foreign earnings, has approached the World Bank and the African Development Bank, seeking emergency loans of $3.5bn. Angola’s 2015 budget forecast of oil at $81 a barrel has been exposed as fanciful.
For critics, OPEC’s apparent indifference towards the plight of African economies reveals a system that has lost sight of one of its founding principles – to deliver economic prosperity to member states.
“Right now Nigeria is struggling with a debt-ridden economy and government can barely afford to cover basic needs. This is when we can see if OPEC is of any relevance. On the evidence of what we see today, that relevance is obscured. Why should we remain in OPEC if we have nothing to gain?” says Olawuyi.
One reason is that a recovery may be on the horizon. At the time of writing, oil was once again nudging $40 a barrel, with senior industry executives tentatively pointing to increases in demand and signs of reduced supply. Saudi Arabia claims it is prepared to join an output freeze at a major producers’ meeting this month.
Furthermore, few believe that African countries have the clout to influence the oil market from outside the OPEC tent. An exit from the cartel would leave them with no influence over prices – better to cling on to fragile influence within the bloc than go it alone in a buyers’ market.
Yet if, as looks likely, African countries opt to remain in OPEC, critics say that they must look for better ways to pool their scarce influence. Olawuyi suggests that OPEC’s smaller producers could learn a thing or two from African unity at the crucial Paris COP21 climate talks.
“Africa formed its own negotiating bloc and articulated a common policy. You can divide OPEC into very wealthy members and the resource-based but poorer members. Why can’t the struggling or fragile members come together as a strong negotiating bloc?”
If African countries are to be taken seriously within OPEC, they will also need to send skilled representatives to lobby on their behalf, offering consistent and predictable policy prescriptions. In the past, African countries have too often sent compromised or incompetent diplomats to Vienna – in October, Diezani Alison-Madueke, former oil minister of Nigeria and former president of OPEC (a largely symbolic post), was arrested in London amid corruption allegations.
“The real problem is a lack of continuity. From one changing government to another you have a new minister who might have a different ideology or fewer qualifications to sit at the OPEC table. We’ve had a former Nigerian minister standing on allegations of corruption, and that raises questions about leadership gaps,” says Olawuyi.
Yet even if African countries can re-establish their presence at the top table, Hall believes that the failed strategy of senior OPEC members may already have done enough to permanently sideline the institution.
“My guess is that it could all fall apart quite easily. After 55 years, it’s run out of steam, misread the market and allowed alternative fuels into the market … OPEC got greedy.”
By David Thomas
