Amr Nabil / AP
OPEC used to change world sun markets with a single message. These days, the Saudi-led organization needs the help of some key partners – most significantly Russia – to exercise this kind of influence.
The extended alliance, which also includes Kazakhstan, Mexico and other nations, is called "OPEC +". And Monday and Tuesday, OPEC + has made its unofficial expansion a little more official.
Members and third countries have agreed on a "Charter of Cooperation" to formalize their relationship pending approval by individual governments.
Khalid Al-Falih, the Saudi oil minister, called the move "historic".
The Charter "has created one of history's strongest producer partnerships, spanning the whole world from east to west," he said Tuesday. "Our goal of market stability is now matched by the horsepower needed to deliver them."
For many decades, OPEC had the horsepower all on its own: its members controlled most of the world's raw supplies.
But the balance of power in the global oil market has changed. A technological revolution unlocked huge amounts of previously difficult to access. The United States unexpectedly became the world's second largest oil producer and a significant exporter. OPEC found itself controlling less than half of the world's crude oil and looked at oil prices.
So Saudi Arabia looked at a country that until a few years ago had never cooperated with OPEC cuts and was considered key OPEC members as an oil skipper in instead of an ally: Russia. After the United States and Saudi Arabia, Russia is the world's second largest oil producer.
"There is no doubt that OPEC's need to reach out to other major manufacturers such as Russia was a direct result of losing their power and influence on the oil market due to the increase in US production and US exports," says Amy Myers Jaffe, Director of the Energy Security and Climate Change Program of the Foreign Relations Council. "Russia and OPEC decided that they should form a partnership or they would lose their influence altogether."
Verified by Moscow and other cooperating non-members, OPEC + again controls most of the world's crude oil supply. At the end of 2016, the group agreed on production cuts that are credited with helping stabilize oil prices after their two-year glide. They have been expanded repeatedly since then.
Building this partnership has not been easy. Iran, which is the founder of OPEC, has always been cautious about the power of the regional rival Saudi Arabia within the group, and the new OPEC + regime – which is about the Riyadh-Moscow partnership – gives even greater authority to the Saudis.
Meanwhile, Iran also has concerns that the Saudi Russia partnership could threaten the existing strategic military alliances between Iran and Russia, Jaffe explains.
"Iran is pretty isolated," she says. "If … Russia feels, there is some benefit to itself having a close relationship with Saudi Arabia, who will help Iran?"
As a result, while Iran has accepted the OPEC + production cuts, it has said against the formalization of the extended coalition – that is, it accepted the functional reality of the partnership, but protested against putting it down in writing. Following on from the OPEC meeting on Monday, Iran promised to veto the cooperation agreement plans.
Oil Minister Bijan Zangeneh went so far as to say that "OPEC can die" as a result of dominance from Saudi Arabia and Russia.
But after Monday's marathon negotiations, Iran was persuaded to unsubscribe from the draft Charter, which was approved by the participating third countries on Tuesday.
OPEC + members welcomed the Charter as a tool to strengthen producers' influence on the oil market.
However, Jaffe notes that although OPEC + itself is amplified, OPEC + may not have the ability to move the price of oil as significantly as before. Many OPEC members are struggling with involuntary production cuts – from Venezuela's collapse to US sanctions against Iran. Meanwhile, the US and other non-OPEC manufacturers can ramp up production very quickly thanks to new drilling technologies.
And if OPEC pushes it successfully pushing prices significantly, Jaffe says it could get on fire – from an oil producer's point of view – by pushing the world to reduce its oil demand more quickly.
"If oil prices go up today … more and more people would be inclined to buy an electric car," she says. "There are all sorts of features today with new technology that actually makes it very dangerous for OPEC's long-term interest to really get the price of oil."