OPEC+

1. Context

OPEC+ decided to cut oil production by 2 million barrels per day (BPD) on 5^th October 2022.

2. Introduction

• The organization of petroleum exporting countries (OPEC) is a permanent, intergovernmental organization, created at the Baghdad conference in 1960, by Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. OPEC now has 13 member states. Iran, Iraq, United Arab Emirates (UAE), Saudi Arabia, Algeria, Libya, Nigeria, Gabon, Equatorial Guinea, the Republic of Congo, Angola, and Venezuela are members of OPEC.
• It aims to manage the supply of oil to set the price of oil in the world market, to avoid fluctuations that might affect the economies of both producing and purchasing countries. The stated mission of the organization is to “coordinate and unify the petroleum policies of its member’s countries and ensure the stabilization of oil markets, to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers, and a fair return on capital for those investing in the petroleum industry.”
• The headquarters are in Vienna, Austria. OPEC membership is open to any country that is a substantial exporter of oil and which shares the ideals of the organization.
• Former OPEC members are Ecuador, Indonesia, and Qatar. Qatar terminated its membership on 1 January 2019.
• With the addition of another 11 allied major oil-producing countries that include Russia, the grouping is known as OPEC+.

3. Reasons for slashing production

• Today’s cut is the biggest of its kind since 2000 when OPEC+ members cut outputs by 10 million BPD during the covid-19 pandemic, The reduction would increase prices and be extremely beneficial for the Middle Eastern member states, to whom Europe has turned for oil after leveling sanctions against Russia since it invaded Ukraine.
• Oil prices increased after Russia invades Ukraine in February, and have since begun to soften over the past few months, before dropping sharply to under $90 in September due to fears of a recession in Europe and reduced demands from China because of its lockdown measures.

4. Who opposes this decision?

• Within the group, some are opposed to such significant cuts in oil production. The United Arab Emirates (UAE) and Kuwait, in particular, are said to be concerned that extended cuts would interfere with their plans to increase oil output capacity.
• Slashes in reduction and subsequently increased oil prices can be a potential threat to the US because the US government is trying to reduce the inflation rates before the mid-term elections in November. The US has not publicly accepted these attempts.

India decision-makers suggestions for the uncertain future of the international petroleum market:

1. It should fill the oil caverns with strategic reserves. Prices may fall further but rather than bottom fish, it should leverage the availability of capacity to secure discounted supplies.
2. Gas is economically competitive these days. It should increase its imports of gas (LNG) from Australia, Africa, and the US. This will reduce the political risks of dependency on oil supplies from the Middle East.
3. It should create an institutional basis for an integrated energy policy. If there is one message we must internalize from COVID, it is the importance of collaboration and coordination.

5. India's strategic petroleum reserves

• India’s strategic reserves are the effort of a border plan to build an emergency stockpile with millions of barrels of crude oil.
• Under the first stage of the strategic petroleum reserves project, underground rock caverns with a total storage of 5.33 MMT, or about 38 million barrels of crude oil, have been commissioned at three locations-

1.    Vishakapatnam (1.33 MMT)
2.    Mangalore (1.5MMT)
3.    Karnataka (2.5 MMT)

• The International Energy Agency (IEA) recommends that all countries hold crude oil stocks worth 90 days of imports. India imports about 85 percent of its crude oil requirements.
• India decided to release 5 million barrels of oil from its strategic reserves as part of a coordinated challenge led by the US against the OPEC+ producer's cartel move to curb output, was the first time that New Delhi dipped into its reserves to leverage it's as a geopolitical tool.

6. International energy agency(IEA)

• The international energy agency (IEA) is an autonomous organization that works to ensure reliable, affordable, and clean energy, it was established in the wake of the 1973 (set up in 1974) Oil crisis after the OPEC cartel had shocked the world with a steep increase in oil prices.
• It is headquartered in Paris, France.

The IEA has four main areas of focus, they are

1. Energy security
2. Economic development
3. Environmental awareness
4. Engagement worldwide.

India became an associate member of the International Energy Agency in 2017.

For Prelims and Mains

source: The Indian Express