OPEC has a trust problem

One of the ironies of the proposed freeze in oil production by Saudi Arabia, Russia and others is that it is — according to an OPEC delegate quoted by Argus on Tuesday — aimed in part at building trust.

It’s understandable that Saudi Arabia may not regard Russia as the most reliable partner when it comes to voluntary supply cuts. But mutual suspicion runs like a fissure within OPEC itself, and thus the cartel’s long history of busted production quotas and internecine warfare.

Besides geopolitical and sectarian tensions, simple economics serve to divide OPEC. It would be a lot easier to agree on a common approach to influencing the global oil market if OPEC’s members were all roughly equal in terms of income and financial strength — but they are far from that.

For example, while Saudi Arabia has a financial cushion to absorb the losses inflicted by its strategy of keeping output high, some of OPEC’s have-nots (notably Venezuela), do not. Worse, there are wide differences in the oil price each government requires to balance their books.

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