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Is OPEC on the Verge of Collapse?

by Richard A Reagan

Recent comments made by Iranian government officials have raised the possibility that OPEC might be on the verge of collapse. The cartel, founded in 1960 in Baghdad and headquartered in Vienna, has long sought to control world oil prices by requiring its members to manipulate production in order to keep oil prices elevated (when they want to gain more money) or lowered (when they want to drive out competition). But now the group is showing increasing signs of fracturing.

It’s important to remember that all cartels eventually break down as the individual members find it more profitable to cheat on the arrangement and pocket additional profits for themselves. In the case of OPEC, the two major founding countries were Venezuela and Saudi Arabia. Venezuela’s oil production has dropped nearly to nothing as a result of socialist mismanagement of the oilfields and hyperinflationary monetary policy, and Saudi Arabia is increasingly going it alone or negotiating with non-OPEC member Russia rather than relying on its OPEC allies.

Iran is particularly incensed because it feels that OPEC is becoming a vehicle to benefit Saudi Arabia specifically rather than all OPEC members. Iran is really feeling the heat now due to enhanced sanctions that the US government has imposed with the goal of choking off all Iranian oil sales. And Iran doesn’t feel like OPEC members are stepping up to help Iran out, preferring to go their own way and leave Iran in the dust.

For that matter, Iran is intent on continuing to produce and export oil, sanctions be damned. And with ready buyers in India, China, and Europe and the means to evade those sanctions, Iran may very well be able to make that happen. That would leave the US with egg on its face, but it would also lead to continued strife within OPEC. The cartel that has dominated world oil production for nearly 60 years may very well be on its last legs.

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