Sputnik has discussed this with Dr Cyril Widdershoven, a veteran global energy market expert who holds several advisory positions with international think tanks in the Middle East and energy sectors in the Netherlands, the United Kingdom, and the United States.
Sputnik: Washington is threatening to pass a bill exposing OPEC members to US anti-trust lawsuits — NOPEC. It has never made it into law, but there is a chance that President Trump could back it. What implications could the law have for the US if passed and what consequences could this have on the shale segment of the market?
Cyril Widdershoven: The so-called NOPEC law would be a major blow to the still critical OPEC-US cooperation, not only on the oil and gas markets, but with growing impact on the geopolitical relationship with several major allies of the US in the Middle East, Africa and even Latin America. Without any doubt, taking for granted the fact that the current position of the Washington administration, which is not only Trump, is rather diffuse in its position towards such as legal act. A NOPEC legislation will have a detreminental effect on the oil market. By threatening to take legal action against OPEC, seen by the US mainly as a cartel, Washington is derailing the global oil (and gas) markets. The increased threat of sanctions or financial/legal actions against players such as Saudi Arabia’s Aramco (including now SABIC), Abu Dhabi’s ADNOC, Iraq INOC or Nigeria’s NNPC, global oil flows will change, taking out US markets possibly, while OPEC oil will be heading to EU-Asia. A potential constraint will NOT be in the interest of the US, and especially not its citizens and industry.
What the US administration and Congress members don’t understand is that the US energy market and economy still needs oil (and oil product) imports, not available in the US. Certain crude oil grades are also needed to be blended with US shale oil to enter into refineries in the US. A striking issue at same time is that one of the US-majority refinery owners is Saudi Arabia’s ARAMCO, holding 100% of US Motiva. If hitting on Saudi, this could be brought to stand still, removing vast parts of product volumes in US. For the US shale industry, the move will also not be very positive. Even US politicians are looking at the NOPEC bill as a way to promote US interests, including economic, by removing OPEC crude from the US market, demand for US shale INSIDE and OUTSIDE will dwindle, as it can not be used without the others. In the current market situation in US shale, it would be contradicting the need for additional foreign investments in shale oil (and gas) to keep production up high or even expanding. The US shale sector needs cash influx, which could be partly be coming from Aramco or ADNOC (UAE) or its investment vehicles. This will not be the case in light of the NOPEC bill.
Sputnik: If the US presents its legal challenge to OPEC, how will it affect relations with one of the closest allies in the region?
Cyril Widdershoven: With such a legal challenge to OPEC, two major things will happen:
- OPEC (and Russia) = OPEC+ will not consider to assist or take into account US energy policies, strategies or cooperation. In the eyes of all, including lawyers, OPEC+ is NOT a cartel, as it is not setting prices or has the option to control the market as a cartel. If US takes this view, the situation will be dire for US interests, US companies abroad, and investments at the same time.
- US allies, especially Saudi Arabia, UAE and indirectly Iraq and others, will no longer be taking into account US interest or cooperation. At present, the NOPEC bill can be seen as a trump card (nice statement haha) for Moscow and China. Washington could be derailing not only its own economy but also remove any still existing willingness in Riyadh, Abu Dhabi, Abuja or Moscow) to cooperate in the energy and strategic fields.
Sputnik: If Riyadh takes such a drastic step as ditching the dollar, as Iran and Venezuela have already done, how will the move affect global trade? How could it affect the dollar's capacity as a main reserve currency?
Cyril Widdershoven: There is no indication in reality that Saudi, or other mainstream OPEC members (UAE, Nigeria, etc) are willing to ditch the US greenback. They can do it, as some deals already with China or India are being discussed, but in general the US dollar will stay the main currency used. Keep in mind, Saudi and UAE sovereign wealth funds are heavily involved in US markets, real estate, infrastructure, investments, shares and bonds. Taking out or diminishing the call for US dollars will hit them severely in their own pockets. The moves by Venezuela and Iran are only a drop in the ocean. Total investments abroad of these two countries are minimal, while oil and gas production and exports have dwindled. OPEC and even Russia are not willing to fully ditch the greenback in the foreseeable future. Keep in mind that dealing with other currencies is a major risk, while most OPEC members have even linked their own currencies to US dollar (dollar pegged).
Sputnik: If Washington loses its clout in global trade, what will happen with its ability to impose sanctions on nation states?
Cyril Widdershoven:The NOPEC law will negatively affect US capabilities to put sanctions on Iran or Venezuela/Russia. Without the full support of its main allies in the Middle East (and within OPEC), sanctions will fail without any doubt. Washington needs to understand it needs OPEC, the otherway around is less so. Trump’s Congress doesn’t understand that the success of shale oil and mainstream industry, including cars, are at present positively effected and stimulated by the stabilising role OPEC (and Russia) is taking. Without control, shale oil would for sure already be broke.
The views expressed in this article are those of the speaker and do not necessarily reflect those of Sputnik.