National

Saudi Arabia announced an oil production cut of 500,000 barrels per day on Tuesday, just weeks after Treasury Secretary Steven Mnuchin said "U.S. friends in the Middle East" would compensate for the drastic decline in Venezuelan oil production driven by U.S. sanctions.

Why it matters: Although U.S. production continues to rise, it still accounts for only 11% of global consumption, compared to OPEC’s 32%. The recent supply cuts illustrate that sudden disruptions and U.S. sanctions that take oil out of the market can put OPEC, and Saudi Arabia specifically, back in charge of global oil prices.

Background: The U.S. economy is 60% less oil-intensive than it was in the 1970s, with virtually no oil used in electricity generation and limited quantities in manufacturing. Still, the transportation sector — with 350 million liquid-fuel cars on the road — has made little progress reducing its overwhelming dependence on oil-based fuels. That means Americans remain susceptible to the effects of an oil-price shock. 

Yes, but: President Trump has shown a willingness to release the U.S. Strategic Petroleum Reserve, which could help drive down prices in the event of further supply reductions. This is particularly pertinent for Saudi Arabia, which shut down an oilfield after a power accident two weeks ago, and Venezuela, whose oil sector would need several years, billions of dollars and new foreign investment to return to previous production levels, even with a change in government.

What's new: Trump, together with Congress, appears to have one other card up his sleeve. Last week, the House Judiciary Committee unanimously passed a bill that would subject the assets of any oil-producing country that participates in an OPEC agreement — or even individual countries with side agreements to limit oil supply — to U.S. antitrust action, including federal lawsuits to force sales of subsidiaries and compensation payments to harmed parties.

That threat alone caused Qatar to quit OPEC, and prompted its secretariat to caution members against making explicit statements about using production cuts to reach a particular price.

What to watch: While OPEC has the reins for the moment, the threat of the House bill might give Trump more leverage over the organization and its members and collaborators.

Amy Myers Jaffe is the David M. Rubenstein Senior Fellow for Energy and the Environment at the Council on Foreign Relations and director of its program on energy security and climate change.

Despite rise in U.S. oil production, OPEC still steers global prices

U.S. sanctions that take oil out of the market give OPEC leverage.

A general view shows oil pumping jacks and drilling pads at the Kern River Oil Field 

The Kern River Oil Field in Bakersfield, Calif. Photo: Mark Ralston/AFP via Getty Images 

Energy

OPEC

Expert Voices

Latin America and Latinos

Saudi Arabia announced an oil production cut of 500,000 barrels per day on Tuesday, just weeks after Treasury Secretary Steven Mnuchin said <a class="gtmContentClick" data-vars-link-text="&quot;U.S. friends in the Middle East&quot;" data-vars-click-url="https://www.wsj.com/articles/u-s-to-place-sanctions-on-venezuela-state-owned-petroleos-de-venezuela-11548708213" data-vars-content-id="44076b0c-ab04-40e4-8129-9994e416feda" data-vars-headline="Despite rise in U.S. oil production, OPEC still steers global prices" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.wsj.com/articles/u-s-to-place-sanctions-on-venezuela-state-owned-petroleos-de-venezuela-11548708213" target="_blank">&quot;U.S. friends in the Middle East&quot;</a> would compensate for the drastic decline in Venezuelan oil production driven by U.S. sanctions.Why it matters: Although U.S. production continues to rise, it still accounts for only 11% of global consumption, compared to OPEC’s 32%. The recent supply cuts illustrate that sudden disruptions and U.S. sanctions that take oil out of the market can put OPEC, and Saudi Arabia specifically, back in charge of global oil prices.

Ominous forecasts about the impact of climate change serve as the backdrop for the world — led by U.S. lawmakers and companies — to debate big action on the problem, which could upend energy systems and our way of life.

Energy & Environment

The convergence of automation, artificial intelligence, advanced manufacturing and big data analytics is poised to remake the transportation, electricity and manufacturing sectors in ways that could eliminate oil use. This comes just as the same energy innovations are making it easier and cheaper to extract oil and gas.

Why it matters: These technological changes mark an end to the psychology of oil scarcity that made Western democracies more tolerant of erratic actions by OPEC and other oil-producing states.

What's new: Historically, OPEC's power derived from anxieties about scarce future oil supply, and Western industrial nations had to kowtow to ensure oil supplies did not get reduced or cut off. Now, the tables are turning.

Worried about the group's future, OPEC's Secretary General Mohammed Barkindo toured Washington, D.C., last week to spread his "sustainable stability" pitch.

Yes, but: Barkindo's message is going to be a hard sell to U.S. policymakers who have been considering federal legislation that would subject foreign oil producers to possible antitrust action by the Justice Department amid the rising role of U.S. oil and gas in global markets.

Between the lines: The geopolitical fallout could be monumental, as the technology boom has lessened the common interests between oil-producing states and Western industrialized nations.

Norway, where one in three cars are electric, just announced that its national pension fund will drop some oil investments amid concerns about oil’s future, and other countries may follow its lead (as they have in the past on coal). Norway's divestment spared oil companies that are investing in clean technologies — a move that explains Big Oil's recent romance with green investment announcements.

As a new wave of civil unrest spreads across the Middle East, technological changes could threaten the viability of OPEC to sustain member oil revenues by making oil cheaper just when the world will need less of it, rendering OPEC less useful. The group already offers little hope to countries whose oil industries are imploding, such as Venezuela and to a lesser extent Nigeria and Libya.

What to watch: The U.S. may have to help vulnerable oil dependent economies make  economic reforms to diversify away from oil and create new jobs for growing populations.

Go deeper: Read "The Tech-Enabled Energy Future" report from CFR.

New energy technologies are disrupting the power of OPEC

The geopolitical fallout could be monumental.

Mohammed Barkindo speaking from a lectern

OPEC Secretary General Mohammed Barkindo. Photo: Karim Sahib/AFP/Getty Images

Technology

The <a class="gtmContentClick" data-vars-link-text="convergence" data-vars-click-url="https://www.cfr.org/report/tech-enabled-energy-future?utm_source=redirect&amp;utm_medium=earned&amp;utm_campaign=Energy-Future-DP" data-vars-content-id="58f008af-d91c-4795-9759-306557327ac4" data-vars-headline="New energy technologies are disrupting the power of OPEC" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.cfr.org/report/tech-enabled-energy-future?utm_source=redirect&amp;utm_medium=earned&amp;utm_campaign=Energy-Future-DP" target="_blank">convergence</a> of automation, artificial intelligence, advanced manufacturing and big data analytics is poised to remake the transportation, electricity and manufacturing sectors in ways that could eliminate oil use. This comes just as the same energy innovations are making it easier and cheaper to extract oil and gas.Why it matters: These technological changes mark an end to the psychology of oil scarcity that made Western democracies more tolerant of erratic actions by OPEC and other oil-producing states.

In announcing Monday that it would leave the Organization of Petroleum Exporting Countries (OPEC), Qatar emphasized an intention to enhance its standing as the world’s leading natural-gas producer and as “a reliable and trustworthy energy supplier across the globe.” The tiny emirate, currently under a Saudi-led blockade, plans to increase its annual production of liquefied natural gas (LNG) from 77 million tons to 110 million tons in the coming years.

Why it matters: Qatar’s withdrawal from OPEC is a slap in the face of Saudi Arabia, which plays a leadership role inside the organization. It also reflects changes in global energy markets, where the competition among different fuels — coal, oil, nuclear, renewables and natural gas — is intensifying as major economies seek to decarbonize.

Background: As far back as 1992, Qatar and Saudi Arabia sparred over territorial conflicts. Qatar’s shift to LNG from oil in the 1990s was motivated by a desire to get out from under the geopolitical shadow of Saudi Arabia while simultaneously diversifying its own economy.

Over recent years, Saudi Arabia and other OPEC members have pressured Qatar to maintain the link of its LNG prices to oil. But as global natural-gas markets become more competitive and flexible pricing more imperative to growing the fuel's market share, oil-based pricing is no longer convenient, especially in light of more abundant U.S. natural-gas exports and increasingly inexpensive renewables. Leaving OPEC will make it easier for Qatar to ignore such price-linking concerns.

The withdrawal comes against the backdrop of President Trump's frequent (and legitimate) complaints that OPEC inflates oil prices to the detriment of the global economy, and especially to key emerging-market countries. The U.S. Congress has also weighed in by advancing legislation that would authorize the U.S. attorney general to file anti-trust charges against OPEC.

What to watch: Qatar has an equity stake in the U.S. Golden Pass LNG export facility, which is expected to receive approval to move forward shortly. By quitting OPEC, Qatar ensures it can put its best foot forward as a supplier of lower-carbon energy while staying clear of any negative associations OPEC membership might have in the eyes of U.S. leadership.

Amy Myers Jaffe is the David M. Rubenstein Senior Fellow for Energy and the Environment and director of the program on energy security and climate change at the Council on Foreign Relations.

Qatar's OPEC exit signals intensifying energy competition beyond oil

It is cementing its role as a chief supplier of lower-carbon energy.

Saad Sherida Al-Kaabi, Qatari Minister of State for Energy Affairs, speaks during a press conference in the capital Doha on December 3, 2018. 

Qatari Minister of State for Energy Affairs Saad Sherida Al-Kaabi at a press conference in Doha, on December 3, 2018. Photo: Anne Levasseur/AFP via Getty Images

Qatar

World

In announcing Monday that it would <a class="gtmContentClick" data-vars-link-text="leave the Organization of Petroleum Exporting Countries (OPEC)" data-vars-click-url="https://www.npr.org/2018/12/03/672839704/qatar-will-pull-out-of-opec-as-rift-with-saudi-arabia-deepens" data-vars-content-id="6cab14e4-dc57-443c-a621-661a2472f7bd" data-vars-headline="Qatar&#x27;s OPEC exit signals intensifying energy competition beyond oil" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.npr.org/2018/12/03/672839704/qatar-will-pull-out-of-opec-as-rift-with-saudi-arabia-deepens" target="_blank">leave the Organization of Petroleum Exporting Countries (OPEC)</a>, Qatar emphasized an intention to enhance its standing as the world’s leading natural-gas producer and as “a reliable and trustworthy energy supplier across the globe.” The tiny emirate, currently under a Saudi-led blockade, plans to increase its annual production of liquefied natural gas (LNG) from 77 million tons to 110 million tons in the coming years.Why it matters: Qatar’s withdrawal from OPEC is a slap in the face of Saudi Arabia, which plays a leadership role inside the organization. It also reflects changes in global energy markets, where the competition among different fuels — coal, oil, nuclear, renewables and natural gas — is intensifying as major economies seek to decarbonize.

This past weekend's strikes on critical infrastructure at Saudi Arabia's second largest oil field at Khurais and its vital crude oil stabilization center at Abqaiq virtually eliminated the cushion of spare oil field capacity that typically prevents market panics during large supply disruptions.

Why it matters: The attack marks a major escalation of the proxy war between regional rivals Saudi Arabia and Iran that has raged since 2015, though there have been previous acts of sabotage on oil facilities. Its success shakes confidence in Saudi Arabia's status as the global swing producer of spare oil supply, a role that has afforded Riyadh substantial influence.

Between the lines: The U.S. and its allies are now gaping at the failure of traditional paradigms of military deterrence in the age of asymmetric warfare, despite a buildup in U.S. Naval presence in recent months. This weekend's attack proved out Iran's destructive capabilities while testing American resolve to remain militarily active in the Middle East.

Iran's rulers are gambling that they can survive any punitive attack on their own military installations and that subsequent attacks by Iran or its proxies on Saudi or other high-value oil targets in the region would hurt the legitimacy of those Arab governments more than its own.

The complexities of the situation create a vast political dilemma for President Trump ahead of the 2020 election. His rhetoric about being tough on Iran is already ringing hollow, and initiating military action would likely meet even less popular support.

What to watch: The U.S. would need to spring into diplomatic hyperdrive to build a coalition at the United Nations and beyond for a unified approach.

But since the big economies of Europe and Asia depend far more on Middle East oil than the U.S., whose domestic production has risen substantially, Iran may hope it can undermine multilateral support for the U.S. sanctions campaign.

The bottom line: Submitting to militarized oil blackmail by Iran is in no one's long-term interests, either economically or geopolitically. To remove the current threat, the U.S. would likely need a strong international consensus like the one it was able to forge around the issue of shipping passage through the Strait of Hormuz.

Iran's militarized oil blackmail exposes failure of deterrence

Its Saudi oil attack came in spite of the U.S. Naval buildup and sanctions campaign.

Saudi defense minister on stage with weapons remnants from the weekend's attack on its oil facilities

Pieces of cruise missiles and drones recovered from the attack and identified by Saudi Arabia as Iranian. Photo: Fayez Nureldine/AFP/Getty Images

Iran

This past weekend&#x27;s <a class="gtmContentClick" data-vars-link-text="strikes" data-vars-click-url="https://www.axios.com/saudi-arabia-oil-drone-strikes-us-blames-iran-29b0bc8b-3645-4fc1-9770-84288dffd7a6.html" data-vars-content-id="b553d09b-373d-4de8-b8a3-54d9cd15bdd2" data-vars-headline="Iran&#x27;s militarized oil blackmail exposes failure of deterrence" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/saudi-arabia-oil-drone-strikes-us-blames-iran-29b0bc8b-3645-4fc1-9770-84288dffd7a6.html" target="_self">strikes</a> on <a class="gtmContentClick" data-vars-link-text="critical infrastructure" data-vars-click-url="https://www.cfr.org/blog/scale-and-nature-attacks-saudi-oil-makes-one-different" data-vars-content-id="b553d09b-373d-4de8-b8a3-54d9cd15bdd2" data-vars-headline="Iran&#x27;s militarized oil blackmail exposes failure of deterrence" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.cfr.org/blog/scale-and-nature-attacks-saudi-oil-makes-one-different" target="_blank">critical infrastructure</a> at Saudi Arabia&#x27;s second largest oil field at Khurais and its vital crude oil stabilization center at Abqaiq virtually eliminated the cushion of spare oil field capacity that typically prevents market panics during large supply disruptions.Why it matters: The attack marks a major escalation of the proxy war between regional rivals Saudi Arabia and Iran that has raged since 2015, though there have been previous acts of <a class="gtmContentClick" data-vars-link-text="sabotage on oil facilities" data-vars-click-url="https://www.cfr.org/blog/oil-and-iran-protests" data-vars-content-id="b553d09b-373d-4de8-b8a3-54d9cd15bdd2" data-vars-headline="Iran&#x27;s militarized oil blackmail exposes failure of deterrence" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.cfr.org/blog/oil-and-iran-protests" target="_blank">sabotage on oil facilities</a>. Its success shakes confidence in Saudi Arabia&#x27;s status as the global swing producer of spare oil supply, a role that has afforded Riyadh substantial influence.

China is becoming the most formidable rival America has faced, and the risk of confrontation with Russia, North Korea or Iran still looms. Authoritarians are rising, the chaotic Afghanistan exit revealed the limits of U.S. power, and the pandemic, climate change and other critical challenges continue to pose grave threats.

The sweeping ambition of the Green New Deal (GND) has raised questions about how it will be paid for. But it’s important to consider how its potential outlays might intersect with investments that will need to be made anyway to replace aging U.S. energy infrastructure.

The big picture: The U.S. already needs to increase its infrastructure investment by more than $3.8 trillion by 2040 in clean water, energy and electricity, transportation networks and telecommunications. The GND could offer a way for policymakers to direct the infrastructure repair and upgrading that already needs to be done in service of fighting climate change.

Background: In the wake of natural disasters, there have been many missed opportunities where federal dollars have gone to restoring, rather than rethinking, poorly designed infrastructure. PG&E’s history of constantly replacing hundreds of residential electricity transformers that fail during heat waves instead of installing new technology is a case in point. This started to change with the October 2018 Disaster Recovery Reform Act, which allocates 6% of disaster funds to improve resilience, not just  to replace destroyed facilities.

Moving forward, the GND could serve as a roadmap for ensuring federal dollars get spent wisely and fairly. Spending on resiliency and decarbonization could overlap via new technologies, as New York, Hawaii and other states are investigating. 

Instead of spending $12 billion on sea walls to protect every critical refining facility on the Gulf Coast, a portion of that money could be diverted to construct electric charging infrastructure or landfill gas programs for alternative fuel vehicles.

The Pentagon and Congress could rethink how to secure U.S. military bases threatened by climate change in ways that align with the GND. Ditto for the Pentagon’s research and development programs on future fuels, logistics and automation. 

Restoring wetlands, mangroves and green space is also a cost-effective way to reduce climate-related damage.

GND legislation could also facilitate private-sector tie-ins for federal green infrastructure investment with green bonds and investment vehicles. 

What to watch: As politicians stake out their response to the GND, look for some legislators to tie in GND themes to programs that must be funded anyway or address multiple goals at once, like employment, energy innovation and decarbonization, especially in rust-belt regions. This proved a successful formula for governors the 2018 midterms, and will likely reappear in the 2020 election cycle.

Green New Deal could support needed upgrades to energy infrastructure

The U.S. already needs to invest more than $3.8 trillion by 2040.

A down transformer is photographed in Paradise, Calif., on Saturday, Nov. 10, 2018.

A downed transformer in Paradise, Calif., on Nov. 10, 2018. Photo: Randy Vazquez/Digital First Media/The Mercury News via Getty Images

Green New Deal

Politics

Alternative energy

The sweeping ambition of the <a class="gtmContentClick" data-vars-link-text="Green New Deal" data-vars-click-url="https://abcnews.go.com/Politics/green-deal-revealed-rep-alexandria-ocasio-cortez-sen/story?id=60908230" data-vars-content-id="defa846a-aa35-42a3-815e-76680262d491" data-vars-headline="Green New Deal could support needed upgrades to energy infrastructure" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://abcnews.go.com/Politics/green-deal-revealed-rep-alexandria-ocasio-cortez-sen/story?id=60908230" target="_blank">Green New Deal</a> (GND) has raised questions about how it will be paid for. But it’s important to consider how its potential outlays might intersect with investments that will need to be made anyway to replace aging U.S. energy infrastructure.The big picture: The U.S. already needs to increase its <a class="gtmContentClick" data-vars-link-text="infrastructure investment by more than $3.8 trillion" data-vars-click-url="http://blogs.worldbank.org/ppps/forecasting-infrastructure-investment-needs-50-countries-7-sectors-through-2040" data-vars-content-id="defa846a-aa35-42a3-815e-76680262d491" data-vars-headline="Green New Deal could support needed upgrades to energy infrastructure" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="http://blogs.worldbank.org/ppps/forecasting-infrastructure-investment-needs-50-countries-7-sectors-through-2040" target="_blank">infrastructure investment by more than $3.8 trillion</a> by 2040 in clean water, energy and electricity, transportation networks and telecommunications. The GND could offer a way for policymakers to direct the infrastructure repair and upgrading that already needs to be done in service of fighting climate change.

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Amy Myers Jaffe

Stories

Iran's militarized oil blackmail exposes failure of deterrence

New energy technologies are disrupting the power of OPEC

Despite rise in U.S. oil production, OPEC still steers global prices

Green New Deal could support needed upgrades to energy infrastructure

Qatar's OPEC exit signals intensifying energy competition beyond oil