JUDY WOODRUFF: Finally tonight, conflict among the world’s oil producers drives up prices.
Margaret Warner has our story.
MARGARET WARNER: The price of oil climbed to nearly $102 a barrel today, up nearly 3 percent in two trading days, after a bitterly divided organization of petroleum-exporting countries, or OPEC, failed to agree to increase oil production.
Saudi Arabia led the push to raise production quotas yesterday, but Iran and others balked. After yesterday’s session in Geneva, the Saudi oil minister called it, “one of the worst meetings we have ever had.”
We look at what was behind this and the likely impact now with Ed Crooks, the U.S. industry and energy editor of The Financial Times.
And, Ed Crooks, welcome. This is the very first time, at least in decades, that OPEC has gone to a meeting like this and failed to come out with some agreement.
ED CROOKS, The Financial Times: Yes. As you say, it’s a very, very dramatic meeting, very unusual development particularly in a sense that Saudi Arabia was defeated.
Saudi Arabia clearly went into the meeting wanting an increase in production. Saudi Arabia thinks that the price of oil is too high at around $100. It would like to see it come down perhaps even to the $80 region. And it wanted to increase production in order to make that happen.
And, usually, what Saudi Arabia wants, it gets. It’s the biggest member of OPEC, the most powerful. It’s the world’s biggest oil exporter and so on. And so, usually, they’re able to swing the other countries behind them and get them to go along with what they want.
Not this time. As you were saying in your introduction there, there was a coalition of countries, possibly led by Iran, but with a number of very other — a number of other countries very prominent in there, Venezuela, another notorious OPEC hard-liner, but also some countries that you might think of as rather more centrist and moderate, including Angola and Iraq actually also voting against this, and Algeria, another one, all opposing the Saudi proposal, saying that they didn’t want quotas increased, they weren’t going to produce more oil.
And so, the Saudi proposal was defeated.
MARGARET WARNER: Now, how much of this was over differences in the economics of the world oil market, and how much was driven by politics?
ED CROOKS: Both. And the two things, I think, very much play together.
On the economic side, there are differences of interests in terms of the way the oil market works. But a lot of the countries — certainly, this is true of Iran and Venezuela — they’re basically producing about as much oil as they can at the moment already, regardless of the OPEC quota.
So an increase in the OPEC limit wouldn’t really have helped them. They wouldn’t be able to sell any more oil. So they didn’t have much interest in that, whereas Saudi Arabia, on the other hand, could produce more oil. Saudi Arabia also has the world’s largest oil reserves.
And so it has very much an interest in not putting the price of oil so high that it encourages alternatives to oil. Saudi Arabia doesn’t want the rest of the world moving to electric cars, using more biofuels, using perhaps natural gas for their vehicles and so on. So, Saudi Arabia gets worried if the price of oil is too high.
Saudi Arabia also gets worried if it looks like the price of oil is going to tip the world economy into recession, which certainly looks like a real risk at the moment. So, those are all the economic factors.
Then you have also got these political divisions, long-running political tension and suspicion, of course, between Saudi Arabia and Iran, very much inflamed at the moment because of Bahrain — Bahrain, of course, that small island state in the Persian Gulf in between Saudi Arabia and Iran, been protests there, protests against the government, violent suppression of those protests, mass arrests and so on.
And the issue there is that Saudi Arabia backs the Bahraini government. It’s actually sent troops to help the Bahraini government. But the majority population in Bahrain is Shiite, and, therefore, has ties to Iran, which has a minority Shiite population.
And there is a strong suspicion in Bahrain that — that Iran is actually fomenting discontent, stoking up the protests against the government and so on. So, this has been a flash point in this very, very sensitive area, because of course that is where a lot of the oil, it’s actually produced. It’s where a lot of the oil travels out through the Persian Gulf.
MARGARET WARNER: And…
ED CROOKS: And so that has caused a great deal of political tension inside OPEC as well.
MARGARET WARNER: And this is also the first OPEC meeting since the Arab uprisings began around the Arab world. How much of that was a factor maybe in another way, for instance, Saudi really wanting to pump in some more oil right now?
ED CROOKS: Yes, absolutely.
And that is another factor for quite a lot of countries. As I say, Saudi Arabia happy to see lower oil prices. A lot of other countries really want to see oil at $100 and that would be very concerned if it fell below that, because they have these very large social programs that they want to spend their money on. They are concerned about political inability in their own countries.
As you see — as you say, they look at the Arab spring around the Arab world. They see governments being overthrown. They see protests in very many countries. They don’t want that to happen to them. They want to spend as much money as possible on social benefits, on pensions, on schools, hospitals, whatever it may be.
MARGARET WARNER: To keep people happy.
ED CROOKS: And so they need the oil revenues to keep flowing — exactly — to…
MARGARET WARNER: Yes.
ED CROOKS: … keep people happy. And so they would like to keep oil at that high level of $100 or more.
MARGARET WARNER: And let me ask you finally the question that is of most interest probably to our viewers, which is, what is this going to mean for oil prices in the short- and medium-term and gas prices here in the U.S.?
ED CROOKS: Well, I think it’s — there is kind of a good news and a bad news aspect.
I think possibly the good news is that we may well see Saudi Arabia just ignoring what OPEC has decided and pumping more oil. They have already been pumping a little bit more oil over the past couple of months or so. We may well see them going even further, dumping more oil onto the market, for exactly that reason, as I say, that they want lower oil prices.
So, we could well see oil prices come down now from where they are, and that would mean cheaper gasoline at the pumps. But there is a kind of — there’s a downside to that, the dark side of that, which is the issue of spare capacity, the amount of kind of leeway in the world oil system, because Saudi Arabia is essentially the only country that has a significant amount of spare capacity, that could pump more oil if it were needed, if there was problems elsewhere in the system.
So, the more production that Saudi Arabia has, the less spare capacity there is, less — the less margin for error there is, if you like, in the world oil system. And that could keep the markets worried.
So, my sense is that, although we probably will see oil prices coming down for a bit from now, it may not last very long. And I certainly think we are going to have to get used to these kind of levels, oil at about around $100, gasoline at about $4 a gallon for the foreseeable future.
MARGARET WARNER: All right.
Ed Crooks of The Financial Times, thank you very much.