The relationship between states and their respective NOCs in the Greater Middle East is organically intertwined. The various non-commercial, socio-economic and military goals of states and their leaders have typically trumped their NOCs commercial objectives, weakening performance. This contrasts with the more advanced international oil companies (IOCs). The sovereignty of the state over its natural resources has been the overriding principle.

The role of Saudi Arabia as a swing producer controling about 90% of Opec’s 4.5mn b/d spare capacity has enhanced the country’s de facto Opec leadership. Opec managed for decades to overcome its members’ economic and political disputes. Even during eight years of war between key members Iran and Iraq (1980-88) and Iraq’s invasion of Kuwait in 1990, Opec decision-making was largely unaffected. Maintaining a united front meant Opec attained higher rent for its members.

But the ideological divide between founding Opec member Iran and Gulf Arab monarchies has been brewing since the 1979 Islamic Revolution. By 2010 this ideological divide had widened, directly impacting international oil markets. The eruption of civil war in Syria and Yemen plunged strategic Opec members Saudi Arabia and Iran into an escalating and deep-rooted ideological conflict with no apparent relation to economic determinants.

The ensuing sectarian ideological chasm between majority Sunni Opec members led by Saudi Arabia, and the Shia led by Iran, represents the key current threat to Opec cohesion. The intensification of hostilities has already transcended diplomatic efforts.

The chances of open warfare increased after the US lifted sanctions on Iran in January 2016 as part of a nuclear deal. Opec seems to have lost its economic rudder. The quota system that regulates the export of oil has been officially terminated with a vengeance: Opec’s balancing role in the supply-demand equation has been shelved, at least temporarily.

The leaderships of both Saudi Arabia and Iran have further confused the market by publicly issuing mutual threats related to the supply of oil, based on defending the market share principle. Oil prices responded by falling to below $30/B, down from a mid-2014 peak of $115/B. Saudi Oil Minister Ali Naimi even declared that his country could live with $20/B as part of defending its market share (MEES, 2 January 2015). His Iranian counterpart Bijan Zanganeh responded by emphasizing his country intended to “regain” its “rightful” market share (MEES, 20 March 2015). The impact on the revenues of all Opec members was devastating (MEES, 29 January). This ideological conflict threatens to reformulate Opec’s future configuration and its future role in world energy.

Given prevailing events, Opec faces serious internal and external vulnerabilities. It is evident that the 13 sovereign members which make up Opec, exercise, when united, absolute direct and indirect influence on the supply and demand equation, and therefore on the price of hydrocarbon sources through their NOCs.

It is equally obvious that the principle of sovereignty is explicit in Opec’s governance structure, its decision-making process, and whether or not member countries comply with any decisions reached.

That state sovereignty is not subordinate to Opec policies has always been the principle modus operandi in Opec governance. Conversely, as Opec member states are heavily involved in directing their NOCs’ performance towards non-oil goals, it is only normal to assume that a spectrum of issues outside the calculus of profit and loss motivates the direction of their hydrocarbon industries.

The principle of sovereignty above all other factors seems to have the unique potential of altering the future of Opec. Ideology in the MENA region is a state domain, and state goals cannot be subordinate to Opec policies. Consequently, reconciliation through compromise regarding such issues is close to impossible and normally leads to serious deadlock and much more.

The prevailing relationship between Saudi Arabia and Iran has already transcended the diplomatic lines and both have crossed the Rubicon. Each has already become deeply involved in damaging wars beyond their borders.

Both have lost property, lives and a lot of funds needed for enhancing economic and institutional development. Together, they are materially, financially and ethically the biggest losers. Opec may very well follow suit.

Still, the industrial world will continue to command the lion’s share of global wealth. Industrialized countries have developed economic resilience through institutional maturity accumulated over centuries of technological innovation and forward knowledge management. Plain arithmetic shows that regardless of the movement of oil and gas prices, the ensuing exchange of products with Opec member states will always be in the favor of industrialized countries.

Nonetheless, ceteris paribus, world markets will be compelled then to adjust to a new reality whereby two models will exist simultaneously: each with different characteristics including pricing mechanisms as well as differing methods of payment. The development of a multi-currency hydrocarbon régime with two different and competing leaderships is a probability that should not be dismissed. Many indicative factors are surfacing, all of which point to the increasingly uncertain future of Opec.

Tables included OPEC Members By The Numbers

Population Muslim Split (%) Output (mn b/d) Reserves (bn bls)*
Opec Member ‘000 km² Mn %Opec Sunni Shia
Algeria (MENA) 1969> 2,382 40 5.7 99 1 1.72 12
Angola (Africa) 2007> 1,247 20 2.8 1.76 9
Ecuador (S Am) 1973–’92, ‘07> 284 16 2.3 0.56 8
Indonesia (SE Asia) 1962–’08, ‘16> 1,905 256 36.3 85 15 0.92 4
Iran (MENA) 1960> 1,648 82 11.6 10 90 338 157
Iraq (MENA) 1960> 437 37 5.2 40 60 3.36 140
Kuwait (MENA) 1960> 18 3 0.4 70 30 2.77 104
Libya (MENA) 1962> 1,760 6 0.9 97 3 0.52 48
Nigeria (Africa) 1971> 924 182 25.8 100 0 2.43 37
Qatar (MENA) 1961> 11 2 0.3 100 0 2.06 25
S Arabia (MENA) 1960> 2,150 28 4.0 90 10 11.62 268
UAE (MENA) 1967> 84 6 0.9 90 10 3.47 98
Venezuela (S Am) 1960> 912 29 4.1 2.69 298
OPEC Total (% of world) 14,672 (3%) 706 (10%) 37.24 (40%) 1,210 (73%)