Geopolitics, not economics, forms oil prices

Geopolitics, not economics, forms oil prices

President of Venezuela Nicolas Maduro intends to request Saudi Arabia to restore oil prices. According to TASS, earlier Maduro invited the U.S. to discuss his offer on fixing the lowest level of oil prices at $70 per barrel. He also proposed to President of Russia and Emir of Qatar to hold a joint summit of OPEC and the other major oil-exporting countries to discuss measures to stabilize world oil prices.

Stanislav Zhiznin, President of the Center of Energy Diplomacy, MGIMO Professor, thinks that prior to this geopolitical turbulence, which is currently global and regional, the oil trade consisted 90% percent on pure economic supply and demand and 10% on geopolitics. “Now, unfortunately, geopolitics plays a big role and exerts a destabilizing effect on economic factors. Today 90% is geopolitics, and the rest is economics. It will not last long.”

Speaking about OPEC’s role in forming prices, Zhiznin noted: “The situation is different in different countries. For instance, Kuwait and the Emirates, they have a lot of money, the population is small. But the situation with Iran and Saudi Arabia is different.”

With regard to Iran, it is living under two embargos. “The first embargo is connected with Iran's nuclear program, and now the U.S. Congress will vote to approve or not approve it, only the international embargo will be removed. They will unfreeze Iranian products, and it will be able to resume its oil exports. But the question is where to export to?"

"The biggest problem is the second embargo. In America, at one time they adopted such a law, D'Amato-Kennedy. There is an anti-Iranian article, which prohibits American companies from investing more than 20 million dollars a year in development of the oil and gas industry in Iran. This law also applies to foreign companies,” the expert says.

As for Saudi Arabia, according to Zhiznin, it needs a higher price: “The reserves of the kingdom are declining. And the kingdom needs a lot of money to develop the social and economic programs that were initiated by former kings, and the new King Salman should continue this. This especially concerns the eastern provinces, where the Shiites live. It takes a lot of money to invest for the Shiites not to begin to riot, and the eastern province is the main oil field in Saudi Arabia.”