Is The U. S. Policy Towards OPEC+ Short-Sighted?

Energy Is The U. S. Policy Towards OPEC+ Short-Sighted? University of Houston Energy Fellows Contributor University of Houston Energy Fellows Contributor Group Opinions expressed by Forbes Contributors are their own.

Oct 14, 2022, 11:45am EDT | New! Click on the conversation bubble to join the conversation Got it! Share to Facebook Share to Twitter Share to Linkedin Ramanan Krishnamoorti, Vice President of Energy and Innovation at University of Houston MARTINEZ, CA – APRIL 1: Smoke drifts away from a Shell Oil refinery April 1, 2004 in Martinez, . . .

[+] California. Analysts predict that OPEC’s decision to cut its oil output target by approximately four percent starting April 2 will cause gasoline prices to rise from their already record highs. (Photo by Justin Sullivan/Getty Images) Getty Images The focus of the OPEC+ cuts in oil production have squarely fallen on Saudi Arabia and Russia, primarily because of the size of their production, but also because of the geopolitical ramifications.

The breakdown of the Saudi-U. S. alliance and the growing partnership between Russia and Saudi Arabia have been at the center of media attention.

President Biden and members of the Congress have gone as far as to call out Saudi Arabia for its failure to stand by the U. S. , labeling the Saudi approach as short-sighted and with potential long-term consequences.

A bipartisan group of U. S. senators have proposed a NOPEC law that could open members of OPEC+ to antitrust lawsuits.

However, lost in the shuffle is the fact that all 23 countries of OPEC+ were in favor of this production cut ostensibly to prop up prices that have been decreasing from their summer highs in response to a softening of global demand and in the anticipation that the global economy will continue to slowdown. It is particularly instructive to understand the other 21 countries that worked with Saudi Arabia and Russia — and by extension, against the U. S.

— to facilitate the announcement of the production cuts. Eight of the 21 are African countries, including Sudan, Equatorial Guinea, South Sudan, Gabon, Congo, Algeria, Nigeria, and Angola. MORE FOR YOU Hiring Refugees: How One Big Factory Did It How Has The Role Of The Franchisor Changed Post-Pandemic? Healthcare Stocks Rise On Policy Support, Week In Review Those eight countries are beholden to Saudi Arabia and Russia, who largely control the agenda of OPEC+ and the eventual price of crude oil globally.

Combined their oil production dwarfs in comparison to that of Saudi Arabia, Russia, or the U. S. The cuts they made, while significant as compared to their overall production, were insignificant to the global market.

Their statement to the U. S. could not have been clearer – start investing in diplomatic overtures, encourage global financing entities to invest in Africa, and encourage the largest (and most efficient) drillers, service providers, and operators of the oil and gas market to back and grow the African energy market.

If not, these countries are ready to move on to the highest bidder. Based on the allegiances of OPEC+, one might be tempted to think of Russia and Saudi Arabia. That would be wrong.

The countries pouring resources and diplomatic charm into Africa are China and India. These two countries have the most to gain from the shift of the African countries away from the U. S.

and Western Europe. These countries are desperately in need of financial and infrastructure resources to rapidly expand their hydrocarbon production and lift their economies and improve their quality of life. They have turned to the two places in the world with an insatiable demand for energy – China and India.

In the short-term, these African countries in OPEC+ understand that oil and gas are going to drive economic development for at least the next decade, if not the next fifty years. They desire every way to advance the use of hydrocarbons and create wealth in their countries before their resources become stranded assets. These countries have embraced Sheikh Yamani’s famous quote, “the Stone Age didn’t end for lack of stone, and the oil age will end long before the world runs out of oil,” and are keen to step on the gas to grow their hydrocarbon production.

Over the last decade, the U. S. and Western Europe have withdrawn from the hydrocarbon development in Africa and are discouraging global investments into these sectors.

In addition to financing the economic development of these countries, China and India understand that the energy transition and a world of electrified systems and renewable energy will require access to critical minerals. Many of these critical minerals are in several of these same African countries. Access to these resources will be critical for satisfying the global needs for energy storage and electric motors in the post-hydrocarbon new energy paradigm.

Lastly, Africa is likely to see the largest growth of its population over the next 30 years and definitely over the next eight years. A burgeoning middle class in Africa is going to be an inviting market for the goods and services that will be produced by China and India for the foreseeable future. It helps to build those foundational partnerships.

So, contrary to the popular belief in the U. S. and Western Europe that OPEC+ is playing the short game, it is clear that at least a part of the group is playing the long game and building up strategic alliances with China and India.

In fact, it appears that the U. S. is playing the short game and sacrificing its future to try and put Russia’s Vladimir Putin and Saudi Arabia’s Mohammed bin Salman Al Saud in their respective places.

Dr. Ramanan Krishnamoorti is the Vice President of Energy and Innovation at the University of Houston. Prior to his current position, Krishnamoorti served as interim vice president for research and technology transfer for UH and the UH System.

During his tenure at the university, he has served as chair of the UH Cullen College of Engineering’s chemical and biomolecular engineering department, associate dean of research for engineering, professor of chemical and biomolecular engineering with affiliated appointments as professor of petroleum engineering and professor of chemistry. Dr. Krishnamoorti obtained his bachelor’s degree in chemical engineering from the Indian Institute of Technology Madras and doctoral degree in chemical engineering from Princeton University in 1994.

UH Energy is the University of Houston’s hub for energy education, research and technology incubation, working to shape the energy future and forge new business approaches in the energy industry. Follow me on Twitter . Check out my website .

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