An Iranian professor said Tuesday that the Organization of Petroleum Exporting Countries (OPEC) is doomed, because of power struggles between Iran and Saudi Arabia that have created serious political fallout.
“OPEC’s power is not waning — I’m sorry, OPEC is finished,” Hossein Askari, an Iranian professor of business at George Washington University who studies the oil industry, told USA Today. “OPEC is just powerless. They cannot agree to anything, both for political reasons and economic realities.”
Saudi Arabia has kept oil prices low to hurt Iran, causing prices to remain low since mid-2014. Iran hasn’t produced much oil recently after seriously investing in its oil sector for years due to sanctions. Simply restoring previous oil production levels is estimated to require a minimum $150 billion of new investment and could cost Iran up to $500 billion over the next five years, according to reports by the country’s state-run news agency. Iran desperately needs the kind of quick cash that only selling oil on the global market can provide.
Since Saudi Arabia refused to slash production at a critical OPEC meeting last November, the price of oil has plunged and is currently below $50 per barrel. These low prices and lack of coordination between the countries weakens OPEC’s power as a cartel.
Conflict between the major oil producers of Saudi Arabia and Iran is escalating, as the Saudis banned ships carrying Iranian crude oil from entering the country’s waters or utilizing its infrastructure in April. The ban has escalated the conflict between the countries and made Iran even more unwilling to cooperate. The Saudi’s have even threatened to increase production by up to a million barrels a day which would vastly lower the price of oil simply to hurt Iran.