OPEC, Oil Prices, and the United States: Reasons for, and Solutions to, the Current Crisis
Featured Speaker: Rachel Ziemba, Dr. Carole Nakhleh, Dr. Jim Krane, and Dr. Jean-François Seznec.
Synopsis:
Halfway through 2022, global oil prices remain at historic levels. On May 31, barrels of Brent crude traded at $115—a remarkable spike from $79 per barrel just six months ago. The crisis sparked by this meteoric price increase has been long in the making. In 2021, the price of oil rebounded as the global economy recovered from the COVID-19 pandemic. Then, on February 24, 2022, Russia invaded Ukraine, ratcheting prices further upward. The tumult caused by rising oil prices has reached the United States, where gasoline prices have soared above $4 a gallon, setting records. Higher prices at the pump will have knock-on effects that go beyond limiting summer road trips, however, and will almost certainly slow economic growth and contribute to even greater domestic inflation. Though the largest single producer of oil, the United States must rely on other states and producers to reduce global oil prices. To this end, no grouping is as consequential as OPEC. From its inception in 1960, OPEC has maintained a tenuous relationship with the United States as both tried to influence or balance oil prices.
Today, OPEC’s perceived inaction in the face of skyrocketing oil prices once again threatens to poison the United States’ relationship with Saudi Arabia, the de facto leader of OPEC and a state with whom relations have been strained under President Biden’s administration. In 2015, OPEC formed an alliance with Russia and other non-OPEC oil producers, known as OPEC+, to control global oil prices through close coordination of production levels and quotas between Moscow and Riyadh. Increasingly frustrated by the status quo, Congress appears poised to intervene in this burgeoning dispute through the No Oil Producing and Exporting Cartels, or NOPEC Act. Originally introduced 19 years ago, the bill has resurfaced this year as the U.S. government seeks to weaken the price-setting powers of OPEC. NOPEC would allow U.S. federal courts to prosecute OPEC member states for coordinating on global oil prices, undermining the purpose and viability of the Organization itself.
What is the current status of the OPEC+ grouping, and will it survive a possible boycott of Russian oil or mounting U.S. pressure on Riyadh? How long can OPEC+ keep prices above $100 per barrel? Will Biden’s visit to Riyadh encourage the Saudis to pump more oil, or is their commitment to OPEC+ and their desire for higher oil prices more important than improved relations with Washington? What is the feasibility of NOPEC, and what would the likely consequences be of the legislation’s passage?