OPEC has a new chief—here’s why the industry’s not expecting that much from him
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By: Holly Ellyatt
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Powerful oil cartel OPEC has a new secretary-general — Mohammed Sanusi Barkindo — but analysts doubt he’ll have any influence over either the 14-member group’s near-term future or oil markets as a whole.
El-Badri, a Libyan, had been in the role for nine years and had been due to leave the position in 2012, but his term in office was extended due to an impasse between Middle Eastern member countries Saudi Arabia, Iran and Iraq over a possible successor. Nigeria proposed Barkindo earlier this year, however, and the group finally accepted the choice atits last meeting in June.
Barkindo, described by analysts as having a relatively low profile in the oil world, was seen as a “neutral” appointment for the group particularly as relations between Saudi Arabia and Iran – both within and outside the group – remain difficult.
Not much is known about the oil producer group’s new figurehead but oil markets will have time to get to know Barkindo as he will serve a three-year term at OPEC‘s helm. He’s no stranger to the oil industry, having served as the head of Nigeria’s state-owned National Petroleum Corporation (NNPC) and doing a stint as acting secretary general for OPEC in 2006.
However, Barkindo is not coming to the role at a harmonious time for oil markets: Global oil prices are still hovering around $40 a barrel due to a very slow rebalancing of markets due to a glut in supply and a failure of demand to keep pace.
OPEC largely contributed to the decline in oil prices by refusing to cut production in November 2014, choosing to defend its share of the market rather than the oil price. Analysts believe that Barkindo’s appointment will do nothing to change the group’s strategy which was seen as a way to put pressure on rival non-OPEC producers, particularly shale oil producers in the U.S. and Canada.
Since then, the group has continued its strategy of record-high production despite the damage it has done to its members’ economies, in terms of lower oil export revenues. Known as OPEC‘s “fragile five,”
Venezuela, Nigeria, Algeria, Iraq and Libya have been most worst-hit by the group’s decision to maintain record-high production often above the official limit of 30 million barrels a day.
“It’s a positive step that OPEC was able to agree on Barkindo’s appointment and he’s from outside of the main rivalries in the group but we shouldn’t overate the role he will play in terms of policy,” Richard Mallinson, who leads the analysis of international affairs and energy policy at Energy Aspects, told CNBC on Monday.
“His appointment won’t make much difference as OPEC policy will still come down to whether individual members can agree on a common position,” he added.
When OPEC last met in June, its 14 members (Gabon rejoined in June and Indonesia returned to the group last year) failed again to agree on any measures to shore-up prices continuing a policy of non-intervention as it said that markets were on their way to rebalancing.
Mallinson sounded an optimistic note that Barkindo’s appointment could herald a period of easier relations once the oversupply in oil markets had worked itself out of the system (with expected higher demand coming from India and continued non-OPEC oil supply declines still expected next year).
“I do think though that there may be more potential for co-operation once the period of low oil prices and the rebalancing period has passed,” he added.
Power still with Saudi and Iran
Most analysts agree that Saudi Arabia and Iran (a country which has only recently re-ignited its oil industry after years of international sanctions and is not keen to curb output now) will continue to hold the strings in OPEC.
Mallinson noted that it is “Saudi and Iran who are the dominant members of the group and if they’re not on board in terms of policy then nothing will change. The secretariat can aid diplomacy and negotiations within OPEC but he cannot set policy which the members have to agree on.”
Miswin Mahesh, oil market analyst at Barclays Capital, said that Barkindo’s new role was largely administrative and spokesman-like and that he was unlikely to be able to heal any deep-seated differences between members.
“It’s a figurehead position really, ” Mahesh told CNBC on Monday. “He can bring together the administrative parts of the body but his powers to execute policy are very limited and, sadly, political differences (such as those between Saudi Arabia and Iran) will overrule that, even if he does have good leadership skills.”
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