OPEC Is Cracking, thanks to fracking

OPEC is exactly the kind of rent-seeking organization the world needs to abolish

By Walter Russell Mead

Members of the Organization of the Petroleum Exporting Countries are meeting Friday to discuss cutting production in response to the new US addition to the global oil market. But delegates have already hinted that the asymmetric impact of the shale revolution on OPEC’s member countries has weakened the bloc’s resolve and will mean no agreement on curbing supply.

That’s because US shale oil is pitting African members against Arab members. The new American oil bounty is of the light, sweet crude variety. It’s higher quality than the heavy crude produced by Gulf OPEC members. But countries like Nigeria, Algeria, and Angola have typically exported sweet crude to the US, and the shale boom is hitting them hardest. Exports from those African members dropped 41 percent from 2011 to 2012.

The countries hit hardest by this new supply source also have the least room to cut production. Their regimes need consistently high exports and oil prices to stay solvent and in power. If OPEC doesn’t cut production, the price of oil is going to drop. That’s going to hurt Venezuela and especially Iran, which is already reeling from Western sanctions on its exports.

Americans are, however, unlikely to be raising money to send to distressed OPEC countries anytime soon. As an aspiring monopoly cartel, OPEC is exactly the kind of rent-seeking organization the world needs to abolish. One of the many positive consequences of the new energy situation is that OPEC is weakening.