Is there any way that politics could influence global oil prices (in either direction)? Or do we have to accept the market’s and a cartel’s (OPEC) dominance?

Over the last 12 months, oil prices in global markets have been volatile. This has been a problem for some (Russia, Saudi, Venezuela), and a blessing for others (China and India). For some governments, the Russian government in particular, falling oil prices pose a serious threat.

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  1. Noah Toly 5 years ago

    In the long term, yes, politics is always already influencing global
    oil prices. Every time we reinforce a path of fossil fuel dependency --
    through daily decisions or more monumental choices - we influence the
    market for oil. This doesn't mean we always reinforce high prices, but
    we always reinforce the power of certain actors and add stress to
    certain geopolitical dynamics.

    In the short term and in this particular case, again yes, politics is
    already at play. The OPEC decision to keep supplies up and prices low
    did not happen in a political vacuum, but happened in the context of
    Russian aggression, a less-than-stable Middle East, the rise of a
    terrorist state, ISIS, that derives revenue from black market oil sales.

    It's not a question of whether politics will influence energy prices,
    but how.

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  2. Alexei Voskressenski 5 years ago

    Politics can somehow influence oil prices, of course. Oil prices in global markets under certain conditions can be volatile, and they can also be stable under the influence of other factors depending also on the overall economic and political situation. Oil exporting countries
    experienced to their benefit a relatively long period of high stable oil prices. However factors that influence oil prices in the long run were already present at the time of high prices.

    The European policy of decreasing reliance on oil import was elaborated long ago and we are
    seeing its results now. Drafts of what is now European energy charter were available more than 5 years ago and now Europe is living accordingly. Possibilities of the shale oil being on the market were discussed from the 1940s onwards and now we are witnessing the appearance of the fourth wave of this technology that enabled the US to export oil and gas, simultaneously decreasing the oil price on internal markets, making the US economy more competitive.

    For Saudi Arabia decreasing oil prices by increasing production is a possibility to curb the new American energy policy which is based on advanced technology and also to exterminate competitors like Russia. So now we are in a cycle of low energy and resource prices in
    the period of technological stagnation and financial turbulence. The trend can be influenced by politics, negative effects on certain types of economies indeed can be reduced but this will need a new level of coordination and global governance which is difficult to achieve in times of political conflicts and sanctions.

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  3. Dmitri Mitin 5 years ago

    Resource prices are notoriously fickle. Notable fluctuations can
    be triggered by technological advances, availability of substitutes,
    changes in the aggregate demand, and unforeseen shocks, such as
    political destabilization, military conflicts, or out of the ordinary
    weather events. There is definitely room for artificial price
    manipulations in the form of energy subsidies, taxes, price and
    production regulation, producer collusion, and other foreign policy and
    domestic schemes with energy production or consumption implications.

    Suspicions of the global pricing mechanism being compromised by
    nefarious political agendas abound; many of these borderline
    conspiratorial explanations are set up in ways that resist
    falsification. It nevertheless appears that the leverage and
    sustainability of intentional price manipulation, especially unilateral
    or exercised by a small group of actors, are limited. Furthermore, such
    interferences tend to produce a host of unintended consequences that
    undermine the original intent. As famously demonstrated, even the
    cartels are predisposed to failure due to Prisoner Dilemma-style
    defections from joint optimality.

    Let’s return to current oil price volatility. It is plausible that
    political strategizing (for instance, manifested in the Saudi decision
    not to cut production) contributed to lower prices. It is more doubtful
    that a political motive was sufficient or even necessary for such a
    dramatic markdown. The primary concern of major oil producers should be
    broader structural and technological factors that are both stronger and
    stickier in terms of impact.

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  4. Shen Dingli 5 years ago

    Though much has been speculated that politics has affected the current oil price, there is no solid proof to vindicate this yet. However, the downward volatility of oil price does offer both opportunity and challenge to members of the international community.

    For instance, for China as a net oil importer, it offers good news for Beijing’s strategic reserve of petroleum, and allows more opportunities to shift its coal-based economy to an oil-based one, inductive for both mitigating air pollution and fulfilling its commitment to reducing carbon emission. The bad news is that with falling oil price, coupled with more sales of cars, China could be further plagued by air pollution. The “APEC Blue”, the blue sky in Beijing during its APEC time last month through policy intervention, will be hard to bring about again.

    For Russia as a net oil exporter, its oil economy has been hurt due to the declining oil price. Due to lack of hard currency, the ruble is fast depreciating. With the shrinking of its hard currency reserve and the EU sanctions restricting Moscow’s state banks to seek financing from the West, Russia could either feel the pain and hence moderate its stance toward Ukraine, or turn further eastward, accelerating the making of an alliance between Russia’s energy and China’s capital, counterbalancing the Western pressure.

    For America, though the lower price of conventional energy could threaten its strategy of unconventional energy, i.e., the shale oil/gas, one has to be cautious not to overstate such effect. To some extent, American aspiration to achieve energy independence would be truly frustrated, at least in short run. Consequently, the more the US would engage in the Middle East, the less it would be able to deeply commit to its “back in Asia” policy. This would be an unexpected benefit that China could possibly reap from the current cheap oil.

    For Saudi Arabia, even though it might be behind the oil politics, it is hard to employ these tactics for too long. If Riyadh intends to hit both the US and Russia, it can make itself a prime victim, as Russia is unlikely to end its handling of Ukraine/Crimea because of oil price, and the US will work harder to cut cost of shale energy, threatening the long-term viability of traditional energy. So why not cut oil supply to stabilize its price?

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  1. Wisam 5 years ago

    Can global politics influence oil prices? Most certainly! Look at OPEC's decision to not decrease production, which would increase prices! Although OPEC has said that this decision has nothing to do with enforcing Iranian and Russian sanctions, whose economies are heavily dependent on energy prices, and also it has nothing to do with keeping prices low to counter US shale production. But all the evidence will point to the contrary. This is exactly as Noah as explained. Perfect example.

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  2. Vitaliya Tsarik 4 years ago

    OPEC member countries can't keep this low price for a long time as they are doing this at their own cost as well.
    And with this in mind their behavior is technically similar to the US/EU sanctions against Iran or Russian. OPEC just doesn't produce any political narrative to explain itself.
    In the end in the globalized interconnected world many states, especially if they cooperate, can impose costs to another state if they they are ready to bear some of those costs themselves. Then it gets to a zero or even negative sum game which can't be played for a long time and consequently it becomes a 'who blinks first' game - the principle which doesn't bring a fair winner or a stable solution to the problem, does it?

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