OPEC Proposes Formal Oil-Production Alliance With Russia

Suhail Al Mazrouei, the UAE energy minister, reportedly said that a long-term pact still faces hurdles (though the current plan would call for the alliance to last three years).

Notably, the plan is a compromise between the status quo and a Saudi and Russia-led proposal that called for the creation of an entirely new bloc which would have been de facto controlled by the Kingdom and Russia, which would have been granted full membership. 

The latest proposal is a compromise of earlier plans floated by the Saudis and Emiratis. Under its own proposal, Saudi Arabia advocated the creation of a completely new organization integrating Russia as a full member. In June, Crown Prince Mohammed Bin Salman, through his oil minister Khalid al-Falih, proposed a new Vienna-based cartel, according to OPEC officials.

The structure would have ended OPEC’s current United Nations-style, egalitarian system, in which each member has the same power to vote on decisions regardless of the size of its production. Instead, the new organization would have bestowed outsize power on Saudi Arabia and Russia.

The Saudi proposal irked OPEC members Iran, Iraq, Nigeria, Angola and Algeria. At the meeting in December, Iraq’s oil minister, Thamir Ghadhban, reminded Mr. Falih that OPEC had been founded in Baghdad—a pointed criticism of the plan. At the gathering, the Saudi minister said he had no plan to create a new organization.

After receiving the Saudi proposal, Russia’s energy minister, Alexander Novak, told OPEC the decision is outside his control and escalated its study to foreign minister Sergei Lavrov and the Kremlin, the OPEC officials said. In late December, Moscow officially rejected the Saudi proposal.

"There will be no formal organization like OPEC," Russian state TV RT quoted Mr. Novak as saying on Dec. 29. He cited the prospect of additional bureaucracy and antitrust risks for the decision.

OPEC members and Russia are expected to debate the proposal in Vienna during a meeting during the week of Feb 18. If OPEC and its sometimes fractious members decide to give it a shot in the name of pushing back against Trump, expect to see oil prices retrace their Q4 drop.

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