Russia and OPEC join forces to raise your gasoline bill

Russia is welcome to become a member of OPEC, according to Iranian oil minister Gholamhossein Nozari.

“The ground is ready in OPEC to accept Russia as a new member, but, of course, countries request membership by evaluating and considering their own interests,” he told Fars News Agency, Iran’s semi-official media outlet, on Thursday, just a few days ahead of the Sunday, March 15, meeting of leaders from the cartel and current non-member Russia.

 

OPEC has every reason to want to bring Russia on board, considering that Russia is the world’s second-largest oil producer and OPEC’s raison d’etre is “to stabilize the world oil market.” And adding Russia’s supply to the OPEC cartel would be a definitive stabilizer. OPEC presently commands two-thirds of the world’s oil reserves. That remaining one-third of non-OPEC oil is a lingering competition. The less of it there is, the happier will the OPEC nations be. Adding Russia would be a big increase in OPEC oil and a big simultaneous decrease in non-OPEC oil. Hence an opportunity to make serious cutbacks in worlwide oil production–triggering serious jumps in price.

 

The strategy paid off literally ovenight: Oil prices shot up 11% Thursday in the wake of Nozari’s announcement hit the wires. Couldn’t have come at a better time, seeing as oil prices had fallen to a historic low of $100 a barrel. 

 

So it’s obvious what OPEC gets out of it. But what does Russia get out of it? Is OPEC membership worth the $2 million annual membership fee?

Probably not. In addition to said fee, being an OPEC nation entails two things: output quotas and mandatory higher prices. Russia actually already has those bases covered. It’s already planning some cuts in oil production to match the declining demand. It’s also making the following two proposals at this weekend’s OPEC conference:

1) In conjunction with OPEC-member Venezuela, a plan to automatically cut supplies if prices fall below a certain level.

-AND-

2) At the end of this year, a meeting in Moscow of the world’s oil-producing nations to discuss “a new pricing mechanism.”

 

I’ll make a point to savor the low gas prices now. It sounds like they’ll be just a warm memory later.

 

 

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