UPSC Essentials: One word a day – OPEC+ international organization | Pro IQRA News

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Topicality: International organizations in the news are important for both preliminary and headline news. Since this organization is related to the energy sector and also has an impact on India, we will take a detailed look at three issues in the Beyond words unit. Try to solve the MCQs and think.

— The grouping of the world’s largest oil producers, the Organization of the Petroleum Exporting Countries (OPEC) and its allies, collectively known as OPEC+, decided to cut oil production by 2 million barrels per day (b/d) on Wednesday (October 5). ).

— This is the biggest reduction since the start of the Covid-19 pandemic. Brent crude, the international benchmark, rose 28 cents, or 0.3%, to $92.08 a barrel after the cut was announced, Reuters reported.

— In light of the recent drop in gas prices, OPEC+ representatives decided in September to cut oil production by a modest 100,000 barrels per day after first agreeing to increase production by the same amount last month.

What is OPEC+?

— Founded in 1960 by founding members Iran, Iraq, Kuwait, Saudi Arabia and Venezuela, OPEC has since expanded to now have 13 member states. OPEC members are Iran, Iraq, Kuwait, United Arab Emirates (UAE), Saudi Arabia, Algeria, Libya, Nigeria, Gabon, Equatorial Guinea, Republic of Congo, Angola and Venezuela.

— Ecuador suspended its membership in December 1992, rejoined OPEC in October 2007, but decided to withdraw from OPEC on January 1, 2020. Qatar terminated its membership on January 1, 2019.

— With the addition of 11 more allied major oil-producing countries, including Russia, the grouping is known as OPEC+.

— The purpose of the organization is “to coordinate and unify the oil policies of its member countries and to ensure the stabilization of oil markets in order to ensure an efficient, economical and regular supply of oil to consumers, a stable income for producers and a fair return on capital for those who invest in the oil industry”, – it says on the OPEC website.

— The headquarters is located in Vienna, Austria. Membership in OPEC is open to any country that is a significant oil exporter and shares the organization’s ideals.

— The creation of OPEC by the five oil-producing developing countries in Baghdad in September 1960 occurred during a period of transition in the international economic and political landscape, with large-scale decolonization and the birth of many newly independent states in developing countries.

— OPEC, formerly controlled by multinational oil companies known as the Seven Sisters, sought to give oil-producing countries greater influence over the world oil market. According to 2018 estimates, they account for approximately 40 percent of global crude oil production and 80 percent of global oil reserves. They usually meet monthly to determine how much oil member countries will produce.

— However, many say that OPEC behaves like a cartel, determining the supply of oil and influencing its price on the world market.

Why are they cutting production?

— Oil prices rose sharply after Russia invaded Ukraine in February and have since softened over the past few months before falling sharply below $90 in September on fears of a recession in Europe and lower demand from China due to its quarantine activities .

— Today’s reduction is the largest of its kind since 2020, when OPEC+ members cut production by 10 million barrels per day during the Covid-19 pandemic, Reuters reports. The cuts will boost prices and be hugely beneficial to Middle Eastern member states, which Europe has turned to for oil since the easing of sanctions against Russia after it invaded Ukraine.

— OPEC+ members are concerned that a faltering global economy will reduce demand for oil, and cuts are seen as a way to protect profits. The surge in oil prices that first occurred during the invasion of Ukraine helped Saudi Arabia, a founding member of OPEC, become one of the world’s fastest-growing economies, according to data. The Wall Street Journal.

-New York Times raised the possibility that Moscow could influence OPEC to make it more expensive for the West to extend energy sanctions against Russia. “As prices rise, it will be much more difficult for Europe to extend sanctions on Russian oil in December,” said Bhushan Bahri, chief executive of S&P Global Commodity Insights.

Who is against this decision?

— There are those in the group who are against such significant reductions in oil production, and accordingly The Wall Street JournalA meeting of OPEC+ technocrats was canceled on Tuesday due to differences that reportedly could only be resolved by a meeting of oil ministers. The United Arab Emirates (UAE) and Kuwait, in particular, are said to be concerned that a prolonged cut will hamper their plans to increase oil production capacity.

— This step is likely to be very harmful for the United States, which has repeatedly asked the organization to increase oil production. President Joe Biden visited Saudi Arabia in July, a country he has vowed to make a “pariah” for its alleged role in the assassination The Washington Post columnist Jamal Khashoggi, in part to plead for more oil. A modest increase of 100,000 bpd in August has since been replaced by efforts to cut output by Saudi Arabia.

— A sharp decline and subsequent rise in oil prices could be particularly dangerous for Biden, who is trying to lower inflation before midterm elections in November. Over the past few days, top Biden administration officials have lobbied their counterparts in Kuwait, Saudi Arabia and the UAE to vote against the oil production cuts, sources told CNN.

— However, the USA publicly disapproved of these attempts. White House press secretary Karin Jean-Pierre told reporters Friday that the U.S. is not part of OPEC+ and did not identify any attempts by her administration, according to The Wall Street Journal. “They are an independent organization and we allow them to make their own news and announcements,” she said.

Beyond the Word: Three Questions

What should Indian decision makers do today to respond to such an uncertain future for the international oil market?

Vikram S. Mehta, chairman and senior fellow at Brookings India, has the following four suggestions.

— First, it should fill the oil caverns with strategic reserves. Prices may fall further, but instead of demersal, it should use the availability of capacity to ensure supply at reduced prices. The world has run out of storage capacity, and producers can pay dollars to find space for their unsold cargoes.

– Secondly, it should increase the import of natural gas (LNG) from Australia, Africa and the USA. This will reduce the political risks of dependence on oil supplies from the Middle East. Gas is also now economically competitive. The price of LNG is low enough to run some gas-fired power plants.

— Thirdly, he should break the “patchwork blanket of power” of bureaucrats, regulators and politicians, which today suppresses the management and efficiency of oil companies.

— And, finally, it should create an institutional basis for a coherent energy policy. If there’s one message we should take from COVID, it’s the importance of collaboration and coordination.

What are strategic oil reserves in India and why are they needed?

—India’s strategic reserves are the result of a broader plan to build up millions of barrels of crude oil reserves similar to those built by the US and its Western allies after the first oil crisis of 1973-74. As part of the first phase of the Strategic Petroleum Reserve project, underground rock caverns with a total reserve of 5.33 million tonnes, or about 38 million barrels of crude oil, were commissioned at three locations — Visakhapatnam (1.33 million tonnes) , Mangalore (1.5 MMT) and Padur in Karnataka (2.5 MMT).

— These facilities can supply approximately 9.5 days of India’s crude oil needs, based on consumption levels in 2019-2020. According to the Centre, the country’s combined oil marketing company (OMC) storage facilities can hold enough crude oil to meet the demand for 64.5 days, bringing the total national storage capacity for crude oil and petroleum products to 74 days. India is expanding its strategic oil reserves by 6.5 million tonnes at two locations — Chandikhol in Odisha (4 million tonnes) and Padur (2.5 million tonnes).

— The International Energy Agency (IEA) recommends that all countries keep crude oil reserves for 90 days of imports. India imports about 85 percent of its crude oil requirements. In case of any disruption in supply from abroad, an authorized committee set up by the government should release crude oil from the stockpile. These include any natural disasters or unforeseen global events that lead to abnormal price increases.

— India has decided release 5 million barrels of oil from its strategic reserves as part of a a coordinated US-led challenge against the OPEC+ producer cartel’s move to curb production, New Delhi dipped into its reserves for the first time to use them as a geopolitical tool. A senior government official said this is the first time India has used strategic reserves to influence international prices.

What is IEA?

—The International Energy Agency (IEA) is an autonomous organization headquartered in Paris, France.

—It works to provide reliable, affordable and clean energy.

— Its origins can be traced back to the oil crisis of 1973 (originating in 1974), after the world witnessed a sharp rise in oil prices due to the OPEC cartel. The IEA consists of 31 member countries and 8 association countries.

— The IEA has four main areas of activity, i.e. 4E: energy security, economic development, environmental awareness and involvement worldwide.

— India became an associate member of the International Energy Agency in 2017.

Specify for reflection: India has become the main buyer of Russian oil What precautions are required?

MCQs:

Consider the following countries

1. Iran

2. Iraq

3. United Arab Emirates

4. Qatar

5. USA

6. Russia

Which of the above countries are part of OPEC or OPEC+?

a) 1,2,3,6

b) 2,3,4,6

c) 1,3,4,5,6

d) 1,2,3,4

(sources: opec.org, iea.org)

Publish Read questions and answers

Can you remember what you read?

  1. Which countries are part of OPEC+?
  2. How should Indian decision makers respond to uncertainty in the international oil market?
  3. How are the IEA and OPEC related?

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