Matein Khalid
It is ironic that Opec, born as the brainchild of a nationalist Venezuelan oil minister in 1960, could die in 2027 as a result of events in that country. US President Donald Trump’s seizure of leader Nicolás Maduro in a military raid on Caracas and ambition to control 65 billion barrels of a vassal state’s proven oil reserves are triggering a seismic geopolitical realignment with big implications for the oil producers’ club.
US ownership of Venezuelan oil is the antithesis of Opec’s obsession with sovereign control of national resources. Trump has made no secret of his disdain for Opec, which he blames for higher gasoline prices and accelerating US inflation. So, Venezuela’s exit from the group is probably imminent four months after the UAE left.
Although such a move is unlikely to have a major price impact since Venezuela’s output is a mere 1.2 million barrels per day (bpd), the Iran war has injected a significant geopolitical risk premium in Brent crude due to sporadic attacks on oil tankers in the Strait of Hormuz, the Red Sea and the Bab al-Mandab waterway.
The real threat to Opec’s existence lies in Trump’s resurrection of the Monroe Doctrine. This mandates exclusive US dominance in the western hemisphere, as manifested in regime change in Caracas and the energy embargo on Cuba. Venezuela is now a de facto US imperial protectorate and its oil sector has become a throwback to the Anglo Persian Oil company monopoly in Qajar Iran a century ago.
Existential threat
The medium-term outlook for Venezuelan production is transformed. Trump’s coup in Caracas has lifted draconian US sanctions and restored the country’s access to global finance and the vast US-owned refinery network in the Caribbean and Texan Gulf Coast built in the 1960s to process heavy sour crude from the Orinoco Belt and Lake Maracaibo.
Dozens of US energy majors, independents, oil wildcatters, offshore drillers and oil service contractors could well invest the $500 billion in capex needed to restore output to the 3.4 million bpd level that Caracas produced before Hugo Chavez’s Bolivarian revolution.
It is not just Venezuela. Opec faces an existential threat from elsewhere. In the US, the meteoric growth of shale output means production could well hit 14 million bpd next year. In Brazil the Santos Basin is an offshore petro-Eldorado. Petrobras pumps 3.5 million bpd now but plans to raise output to 5.3 million bpd by 2030.
In Guyana, Exxon’s billion-barrel offshore gusher means the poorest country in the Caribbean is now the world’s highest-growth economy, as output has surged from zero to 1.2 million bpd over the past three years. Brazil and Guyana alone mean Opec will have to contend with a rival whose output exceeds that of Kuwait and Abu Dhabi combined.
In southern Argentina is the ultimate Latin American threat to Opec. Its Vaca Muerta basin, a late Jurassic reservoir in northern Patagonia, is estimated to contain 16 billion barrels in recoverable shale oil reserves as well as 300 trillion cubic feet of natural gas. Argentina’s output is 1.2 million bpd now but could well triple in five years.
Opec no longer has the spare capacity or geopolitical luxury to control oil prices as the balance of power in global energy markets shifts from the Middle East to the US and South America. Trump’s oil coup in Venezuela will only accelerate this process.
US and South American output of oil and biofuels already exceeds 42 million bpd and has risen by 3.2 million bpd in the past two years alone, double global oil demand growth.
The “oil curse” that eventually destroyed the ayatollah’s Iran, Colonel Gaddafi’s Libya and Saddam’s Iraq as credible, affluent petro economies has shifted the epicentre of oil exploration and foreign direct investment from the Middle East to the Permian Basin in West Texas and the emerging petro powers of South America.
There is no role or political space for Opec, whose death rattle the world could well witness in 2027.
The possible end of Opec means no mechanism will exist to enforce production discipline among oil exporters, and Saudi Arabia will no longer play its traditional role as swing producer for the global oil market.
This means a return to the Darwinian oil price wars and crashes that the global economy saw in 1986, 1999, 2015, 2019 and 2020. Wall Street should brace for more volatile price swings in either direction as Operation Epic Fury’s end could spell an epic oil glut in Opec’s twilight. With his oil coups in Venezuela and Iran, Trump has vindicated chairman Mao’s dictum that “power flows from the barrel of a gun”.
Also published on Medium.
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