Held in Samarkand, Uzbekistan, from September 15 to 16, the 2022 summit of the Shanghai Cooperation Organization (SCO) Heads of State Council demonstrated that the SCO was continuing to evolve into a viable international political congregation independent from the West.
Beginning in the early 1800s, international organizations (IOs) began to emerge as modest arbiters of European affairs. But during and after World War II, new IOs established themselves as far more prominent actors on a global scale. The United Nations (UN), the Arab League, the Organization of Petroleum Exporting Countries (OPEC), the Association of Southeast Asian Nations (ASEAN), and several other IOs were created to manage the affairs of their member states.
After the Soviet collapse, more IOs were created to manage the independence of new states, globalization, and regional cooperation. The Commonwealth of Independent States (CIS), created in 1991, attempted to coordinate military, economic, and political policies between post-Soviet states. The European Union (EU) and the African Union (AU), created in 1993 and 2002, respectively, bound member states more forcefully to common economic and political norms. Other IOs, like the Arctic Council (1996) and Asia Cooperation Dialogue (2002), aimed to foster broader regional cooperation.
Most new international organizations meshed neatly with the Western-led liberal world order. But in 2001, the formation of the Shanghai Cooperation Organization (SCO) was formally announced, and it established itself as an exclusionary outlier. Originally known as the Shanghai Five when it was created in 1996, it included China, Russia, Kazakhstan, Kyrgyzstan, and Tajikistan, with Uzbekistan later joining when it evolved into the SCO in 2001.
The SCO was created partly to help coordinate a new era of peaceful relations between Moscow and Beijing and to manage their coalescing interests in Central Asian states. In addition, combatting the “Three Evils” of extremism, separatism, and terrorism were major priorities for the organization, which included data and intelligence sharing and common military drills among its member states.
Over time, the SCO began to embrace greater political and economic integration. Support for autocratic rule and limiting criticism of human rights violations set it apart from other Western-aligned IOs, with the SCO also overseeing the growth of joint energy projects, the fostering of trade agreements, and the introduction of the SCO Interbank Consortium in 2005 “to organize a mechanism for financing and banking services in investment projects supported by the governments of the SCO member states.”
But the organization’s most pressing vocation was facilitating a multipolar world order. Investing in an independent forum for economic, political, and military affairs outside of Western influence became a key component of Russian and Chinese attempts to reduce Western power in global affairs.
Russia and China have also developed complementary mechanisms to the SCO, which have helped decentralize its mission. Following the blacklisting of several Russian banks from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) in 2014, for example, the Kremlin approved the creation of the System for Transfer of Financial Messages (SPFS) to replicate SWIFT and introduced the National Payment Card System (now known as Mir), while China created the Cross-Border Interbank Payment System (CIPS).
These initiatives even proved attractive to states that were more aligned with the Western-led global order. India and Pakistan began SCO accession talks in 2015 and officially joined the organization in 2017. Despite relatively positive relations with the West, India and Pakistan have both faced Western criticism over human rights and democratic backsliding in recent years. India’s introduction of platforms like RuPay in 2012 and Unified Payments Interface, which eroded the traditional dominance of Visa and Mastercard in the country, also complemented SCO’s attempts to reduce Western economic preeminence globally.
At the 2022 summit of the SCO Heads of State Council, Uzbek President Shavkat Mirziyoyev reiterated that the SCO was not an anti-U.S. or anti-NATO alliance. But the organization’s original motive to create a multipolar world was echoed in its Samarkand Declaration, the final declaration of this meeting, and continues to conflict with Washington’s attempts to maintain the U.S.-led world order. According to the declaration, the member states “confirm[ed] their commitment to [the] formation of a more representative, democratic, just and multipolar world order.”
This core stratagem continues to appeal to countries around the world. Alongside the leaders of its eight member states, the SCO invited the presidents of Belarus, Mongolia, and Iran as official observers to the recent summit. Having started its accession process in 2021, Iran signed a memorandum of understanding with the SCO to join the institution by April 2023.
The SCO would likely alleviate Iran’s sense of economic isolation stemming from Western sanctions, a sentiment shared by Iranian officials at the summit and something that was also noted back in 2007. Belarus has also found itself under increasing sanctions in recent years and enhanced its accession procedures to join the SCO in Samarkand.
The presidents of Azerbaijan, Turkmenistan, and Turkey were also invited to the SCO summit as special guests, with Turkish President Recep Tayyip Erdoğan announcing that his country would seek full membership to the SCO. In 2012, Erdoğan joked to Russian President Vladimir Putin about abandoning Turkey’s EU aspirations if Russia would allow them into the SCO. Turkey’s renewed attempt comes at a time when its ties with the rest of the Western world are increasingly strained and could instigate other NATO states, and potentially the EU states, to join the SCO as well.
The SCO has also established strong relations with other IOs. Representatives from ASEAN, the UN, the Russian-dominated CIS, the Collective Security Treaty Organization (CSTO), and the Eurasian Economic Union (EAEU) were invited to the 2022 summit. Notably absent were any representatives from the EU or NATO. Meanwhile, in 2005, the U.S. was rejected from gaining observer status, solidifying the SCO’s status as a bulwark against U.S. influence in Eurasia.
Like all major international organizations, the SCO faces systemic obstacles that hinder its effectiveness and long-term viability. At the recent summit in Uzbekistan, China’s Xi Jinping was welcomed to the country by his Uzbek counterpart, Shavkat Mirziyoyev. Putin, however, was greeted by Uzbek Prime Minister Abdulla Aripov, highlighting Russia’s strained relations with many of the former Soviet states and the growing strength of Beijing over Moscow. Unlike in the CSTO and the EAEU, Russia is not the dominant actor in the SCO, and will increasingly have to contend with China’s predominant authority.
Disputes also remain between SCO member states. India and Pakistan, for example, are afflicted with an ongoing struggle over Kashmir. China and India have their own territorial disputes and have engaged in minor violent skirmishes since India joined the SCO. Additionally, deadly clashes between Kyrgyzstan and Tajikistan erupted during the recent summit, while admitting Armenia and Azerbaijan, both of which are SCO dialogue partners, will only further increase the number of members currently locked in their own territorial disputes.
But the SCO has consistently portrayed itself as a vehicle to supervise these issues. The leaders of Kyrgyzstan and Tajikistan met for talks during the summit to assuage tensions. And since 2002, the Regional Anti-Terrorist Structure (RATS) has encouraged military coordination between member states, with the Indian and Pakistani militaries conducting RATS drills in 2021. More drills between them are planned for October, and while they are aimed primarily at countering unrest from Afghanistan, they are also part of SCO’s attempts to manage relations of member states.
China and Russia have also agreed to “synergize” the Belt and Road Initiative (BRI) and the EAEU to help mitigate possible tension between them, with both Xi and Putin meeting on the sidelines of the 2022 SCO summit and pledging to respect each other’s core interests.
The SCO member states clearly believe the organization can, and has greater potential to, effectively manage their concerns and regional affairs, and its appeal continues to grow. Besides the additional SCO dialogue partners (Cambodia, Nepal, and Sri Lanka), Qatar, Saudi Arabia, and Egypt were granted the status of SCO dialogue partners at the 2022 SCO summit. Myanmar, Bahrain, Kuwait, the United Arab Emirates (UAE), and the Maldives were also granted the status of dialogue partners.
Russian and Chinese influence will fall as more members join, which will also dilute consensus within the organization. But it remains a Beijing and Moscow-led initiative to manage world affairs and to demonstrate that the “international community” is not just the West. With almost half of the world’s population and a quarter of the global GDP, the SCO is increasingly becoming a representative of the Global South.
By pooling together other IOs into an umbrella forum, the SCO can further its goal of challenging the wider Western-dominated IO ecosystem and prevent Washington from setting the global agenda. This will require the constructive management of Russian and Chinese ambitions and the increasingly complex needs of more member states.
John P. Ruehl is an Australian-American journalist living in Washington, D.C. He is a contributing editor to Strategic Policy and a contributor to several other foreign affairs publications. He is currently finishing a book on Russia to be published in 2022.
Legit Group Secures Rp 205.3 Billion in Series A Funding for F&B Business Expansion
TELEGRAF – Legit Group, a multi-brand cloud kitchen conceptor and operator, has announced the success of its series A funding round, raising a total of US$13.7 million (IDR 205.3 billion) from several investors. The funding was led by MDI Ventures, the venture capital arm of PT Telkom Indonesia Tbk, and followed by Sinar Mas Digital Ventures (SMDV), East Ventures, and Winter Capital. In 2021, Legit Group also successfully raised seed funding worth US$3 million (IDR 43 billion) from East Ventures and AC Ventures, JAKARTA, TUESDAY (11 APRIL 2023).
Founded in 2021, Legit Group currently operates four well-known brands, including Pastaria, Sei’Tan, Sek Fan, and Ryujin, located in over 30 locations in Jabodetabek. Interestingly, Legit Group’s brands do not have any offline locations, but operate using a cloud business model.
This new funding adds optimism to Legit Group to dominate the market through the right marketing strategy in the F&B industry. This confidence is supported by the strong traction the company has gained since the initial funding round, with sales reaching about three times in one month, and launching a new brand.
Bram Hendrata, Chairman of Legit Group said, “We are excited to have a strong group of investors to support us in creating a brand that carries the vision of ‘Food for Everyone’. Through the funding obtained from MDI Ventures, this can strengthen Legit Group’s commitment to bringing more food to various places, while continuing to innovate and improve the technology we have to achieve more efficient operating systems,” said Bram, who has been a veteran in the F&B industry for 15 years.
Currently, Legit Group’s business sector is rapidly growing. While most regular cloud kitchen business owners focus on improving their ability to serve more consumers in new areas, Legit Group has seen the potential for new generation F&B technology that focuses more on developing F&B brands by applying technology to maximize profits. Therefore, Legit Group believes that this focus will provide a competitive advantage in the cloud kitchen market.
Donald Wihardja, CEO of MDI Ventures said, “Legit Group’s founders’ experience, who have succeeded in the F&B business for 15 years, as well as their ability to develop innovative and effective products and marketing strategies, make MDI Ventures more confident that our support as investors will help strengthen their position in the F&B industry and accelerate their business growth. This collaboration is expected to create positive synergy and greater success for both parties. This investment is also an effort by MDI Ventures to provide a positive social impact on the growth of the agriculture sector in Indonesia.”
Amidst the macroeconomic conditions that often demand startup businesses to remain profitable, Legit Group has set its top priority to achieve economic balance while continuing to strive for a healthy economic unit. To achieve this goal, Legit Group has announced its plan to expand in 2023, targeting Jabodetabek and other cities that have great potential for delivery market, after 95% of Legit Group’s outlets were previously spread across several locations in Jakarta.
“Through the support from various parties, strategic approaches, and our commitment to product quality excellence, we believe we can continue to produce products that…
MKI Teams up with Enlit Asia to Host the Most Influential Electricity and Energy Sector Meeting in ASEAN
In order to promote the development of clean energy technology in the ASEAN region, the most influential electricity and energy sector meeting in ASEAN
Telegraf – In order to promote the development of clean energy technology in the ASEAN region, the most influential electricity and energy sector meeting in ASEAN will once again be held in Jakarta in 2023, coinciding with Indonesia’s Chairmanship of the ASEAN Summit. This meeting is a partnership between Enlit Asia and the Indonesian Electricity Society (MKI), which will hold two leading events in the electricity and energy business and industry in the ASEAN region, with the support of PT PLN (Persero) as Utility Host and the Ministry of Energy and Mineral Resources.
The Enlit Asia 2023 event and the 78th Indonesian National Electricity Day (HLN 78) will be jointly opened on November 14, 2023, at the Indonesia Convention Exhibition (ICE). This combined event continues the successful partnership that brought the first Powergen Asia to Indonesia and the 73rd Indonesian National Electricity Day in 2018.
This cooperation will bring together more than 350 exhibition participants from around the world who will showcase the latest technologies and innovations that support energy transition throughout ASEAN. It is expected that 12,000 visitors from all over Indonesia and ASEAN will benefit from over 75 hours of free content provided by technology providers and the latest solutions, as well as case studies on the use of the latest technology in the field by IPPs and electric utilities.
This meeting is being held to support energy transition in the ASEAN region and will focus on commercial and strategic issues that will accelerate the transition to a cleaner and more sustainable power system. Over 150 leading speakers in the industry will share their insights simultaneously, where the evolution of traditional energy systems, integration of next-generation clean generation technology, and frameworks and financing supporting this transition will be the focus of the discussion.
With more and more companies participating in the exhibition, including those focused on Carbon Capture and Storage, Hydrogen technology, Energy Storage, Smart Grid, and RE integration solutions including Solar PV and Wind Energy, as well as Nuclear power generation technology, the event is further cementing its position as a leading industry meeting on the ASEAN calendar.
“We are delighted to return to Jakarta and partner with MKI once again. Indonesia is a very important market in the ASEAN region, with the highest electricity demand, projected growth, and active steps being taken to achieve sustainability targets and renew network infrastructure. Partnering with the Indonesian National Electricity Day to see Enlit Asia’s regional reach and capabilities unite key industry stakeholders from across ASEAN, supported by Indonesia’s strong sense of taste, is very important. In 2023, we can promise that this event will fully reflect the strong enthusiasm to drive ASEAN energy transition, supported by the investment appetite of governments, regulators, utilities, and IPPs in this region,” said Richard Ireland, Chief Executive Officer of Clarion Events Asia.
Meanwhile, Arsyadany G Akmalaputri, Secretary General of MKI, explained that this year’s Indonesian National Electricity Day is the third time that MKI has partnered with Enlit Asia in organizing conferences and exhibitions. The 78th Indonesian National Electricity Day and Enlit Asia 2023 event will carry the theme “Strenghtening ASEAN Readiness in Energy Transition: Your Guide to The Energy Transition in Asia”. This year’s program will be different from previous ones, where support for the world’s commitment to implementing energy transition towards cleaner energy has been declared.
In line with Indonesia’s mandate as Chair of ASEAN, ASEAN will continue to be the epicenter of its strong and empowered society growth. The event organized by MKI and Enlit Asia is highly relevant given the scope of exhibition and conference participants
PGEO Boosts Net Profit in 2022 through Efficiency Programs
Telegraf – PT Pertamina Geothermal Energy Tbk. (PGE) (IDX: PGEO), a subsidiary of Pertamina engaged in the geothermal sector, achieved a positive performance in 2022. This positive performance was due to the efficiency program, steam and electricity sales, and other revenue contributions that led to a 49.7 percent increase in the company’s net profit compared to 2021.
The increase in profit was recorded in the company’s audited financial report, which was publicly released on March 30, 2023. In the report, PGE recorded a net profit of USD 127.3 million in 2022, significantly higher than its 2021 achievement of USD 85 million.
Throughout 2022, the company recorded a 4.7 percent year-on-year (yoy) increase in operational revenue, contributing to a USD 17 million increase in revenue. One of the contributing factors was the higher selling price of steam and electricity, referring to the US Producer Price Index (PPI) and Consumer Price Index (CPI). Additionally, the increase in profit was supported by the significant reduction of operational costs as a result of the company’s efficiency program. From the other revenue side, PGE also recorded carbon credit sales as a new revenue generator.
As part of PGE’s efforts to increase its installed capacity by 600 MW in 2027, the company is currently constructing the Lumut Balai Unit 2 Geothermal Power Plant with a capacity of 55 MW, which is expected to operate commercially by the end of 2024. Additionally, PGE has completed the Front End Engineering Design (FEED) for the Fluid Collection and Reinjection System (FCRS) facility. This phase is part of the project to develop the Hulu Lais Unit 1 and 2 Geothermal Power Plants with a total installed capacity of 2 x 55 MW, which is expected to operate commercially in 2026.
Moving forward, the company will focus on optimizing its existing geothermal assets. One way to do this is by increasing production capacity through co-generation technology, utilizing the available hot water (brine) to generate electricity. Co-generation technology has already been implemented at the Lahendong Geothermal Power Plant, utilizing the residual brine from steam production to generate 700 KW of power.
From an ESG perspective, in 2022, PGE achieved an ESG Rating 2 from Sustainable Fitch. This rating indicates that PGE is in the good performance category in terms of ESG management. The ESG initiatives carried out by PGE in 2022 include several programs, such as co-generation technology (brine to power) utilization in the Lahendong area, emission reduction and carbon credit sales, biodiversity programs, occupational health and safety management, corporate social responsibility (CSR), enterprise risk management (ERM), cyber security, and the implementation of an anti-bribery management system (SMAP).
The Urgency of Increasing Competence in Achieving Success in Investing in the Capital Market
TELEGRAF – GI BEI Institut Asia Malang Presents: “The Urgency of Increasing Competence in Achieving Success in Investing in the Capital Market” with Dr. Titis Sosro Tri Raharjo, M.M., CRP, CIB,CSA, CSC, CES, RFC, CRMP, CPIA, C.Me, CPRM as Guest Lecturer
Join us on Tuesday, March 28th, 2023 from 09.00 AM to 12.00 PM WIB at R. Theater Lt.1 Kampus Pusat Institut Asia Malang for a special guest lecture on the importance of improving competence in achieving investment success in the stock market. The lecture will be presented by Dr. (Cand.) Titis Sosro Tri Raharjo, M.M., CRP, CIB,CSA, CSC, CES, RFC, CRMP, CPIA, C.Me, CPRM, who is the Treasurer General of PROPAMI.
The purpose of this guest lecture is to provide participants with better knowledge and understanding of the stock market, which is a form of investment that can provide significant returns but also comes with high risks. Therefore, investors need to have sufficient competence in making investment decisions and choosing the right investment instruments.
Through this guest lecture, participants will gain a better understanding of the stock market and how to achieve success within it. The lecture will cover various effective and efficient investment techniques and strategies, allowing participants to have a deeper understanding of the stock market.
In addition, participants will have the opportunity to directly ask questions to the speaker, Dr. (Cand.) Titis Sosro Tri Raharjo, M.M., CRP, CIB,CSA, CSC, CES, RFC, CRMP, CPIA, C.Me, CPRM, who has extensive experience and knowledge in the field of stock market investment. This will enable participants to deepen their understanding of investment in the stock market.
This guest lecture is suitable for anyone who wants to improve their knowledge and competence in investing in the stock market. Don’t miss this opportunity to learn from an expert in the field of stock market investment. Register now to join the guest lecture on “Urgensi Peningkatan Kompetensi Dalam Meraih Sukses Berinvestasi di Pasar Modal” by GI BEI Institut Asia Malang on March 28th, 2023.
An Entertaining Window into Turkey’s Gross Misspending
There are countless examples of the Justice and Development Party’s (AKP) dubious spending habits, from $50,000 handbags for Turkey’s first lady to purchasing political support ahead of elections. Yet there’s no greater proof of the government’s reckless ways than the capital’s failed amusement park: Ankapark.
Today, giant decaying dinosaurs tower over the $801 million ghost town in northern Ankara. When it opened, in March 2019, Ankapark, also known as Worldland Eurasia, was the biggest theme park in Europe. Spread over 3.2 million acres with more than 2,100 rides and a parking lot that could accommodate 6,800 vehicles, the venture was called a “symbol of pride for Turkey” by President Recep Tayyip Erdogan.
But just two days after its grand opening, one of the park’s rollercoasters failed, setting the tone for the weeks to come. As one visitor noted on Tripadvisor six months later, 20 percent of the rides were still not working and management didn’t seem to care. “Why have I paid a 75 lira entrance fee (about $13 at the time) for this?” the visitor wrote.
Then, in February 2020, due to an unpaid 2.5 million lira electricity bill, Ankapark’s power was turned off. It’s been off ever since.
While the park’s demise was swift, the project was doomed from the start. Many experts expressed concern about its location and exorbitant price tag. The Chamber of Architects of Turkey filed more than 300 legal complaints to stop the park from happening, and feasibility reports suggested that the finances would never add up.
“For it not to go bankrupt it would have required 18 million visitors yearly to pay a minimum 50 lira entrance fee,” said Tezcan Karakus Candan, Ankara chair for the architects’ chamber, in a 2021 documentary. That’s 2 million more visitors than Paris’ Disneyland, Europe’s most visited theme park. In 2019, roughly half a million foreign tourists visited Ankara; the domestic market would have had to draw millions more for Ankapark to survive.
And yet, then-mayor of Ankara, Melih Gokcek, who had been lobbying for Ankapark since the early 2000s – and had pushed legal changes to accommodate his dream – remained convinced that millions could be drawn to the park’s gates. Gokcek and AKP remained committed to the project until its very end.
Dismissing public opinion, especially on matters of money, has become an AKP hallmark. During the Erdogan era, countless initiatives have permanently damaged the environment and drained Turkish national funds. One of the crazier expenses at Ankapark was $1.8 million spent on plastic flowers and plastic trees. But that’s nothing compared to the president’s own profligate spending. Every day, the presidential palace doles out 10 million lira for food, cleaning, clothes, and other items. Even as Turkey’s economy has tanked, the palace’s bill has climbed steadily to nearly four billion lira annually.
Turkey isn’t alone with poorly planned parks. In 1998, construction stopped on China’s Wonderland, north of Beijing. Wonderland was designed to be Asia’s largest amusement park, but a dispute over property prices stalled the project. A brief attempt to restart construction in 2008 also failed, and today, the fairytale castles have been replaced by a luxury shopping mall.
But what sets Ankapark apart is its use as a political ploy to dominate headlines before the 2019 local elections, and to bolster the AKP’s image as the only party “working” for Turkey. When the park collapsed, the party acted as if it never existed.
Today, Ankapark is a literal, and political, wasteland. As is custom with AKP politicians, Gokcek blamed Ankara’s new mayor, Mansur Yavas, for the failure. Murat Kurum, the Turkish minister of environment and urban planning, went further, claiming that the disintegration of Ankapark was a classic example of the Republican People’s Party’s (CHP) malfeasance. In other words, Ankapark wasn’t the problem, CHP was.
These falsehoods were consistent with AKP’s deflective defense mechanisms and how the party’s leaders blame others while failing to take responsibility themselves.
During his decades-long campaign to promote Ankapark, Mayor Gokcek repeatedly insisted the venture was “the second biggest project financed by the state in the nation’s history.” If that is true, what was in it for AKP? Why were millions spent on a theme park when those funds could have been used on more pressing issues – such as building homes for Turkey’s poor or helping thousands of students receive access to education for free?
Even basic plumbing would have been a wiser use of the money. Ankara’s infrastructure problems, particularly water distribution, could be solved with $600 million. Instead, city taps run dry while $801 million worth of robots, dinosaurs, plastic flowers, and malfunctioning rides rot in the sun.
What does all of this say about the AKP in 2022? As with almost all pending and completed projects during the party’s rule, Ankapark has drawn criticism from those who believe it was a scheme fueled by corruption and a means to funnel public money into the pockets of AKP-affiliated businessmen and party acolytes.
The rotting carcass of Ankapark is emblematic of AKP’s economic legacy, one filled with short term decisions benefitting their own. As Turkey’s economic crisis deepens, it’s important to remember that the economic rut the country is in today is paved with poor decisions of the past.
Alexandra de Cramer is a journalist based in Istanbul. She reported on the Arab Spring from Beirut as a Middle East correspondent for Milliyet newspaper. Her work ranges from current affairs to culture, and has been featured in Monocle, Courier Magazine, Maison Francaise, and Istanbul Art News.
America’s Failed Quest for Energy Independence
The US pursuit of “energy independence,” let alone “energy dominance,” did not last long. Like presidents before him, Joe Biden finds himself in the position of first imploring OPEC states, then expressing anger at their decisions on oil production. But a new, more active American oil policy threatens changes.
The meeting in Vienna of the OPEC+ group of leading oil exporters on October 5 decided to cut its production target by 2 million barrels per day, which will amount to about 900,000 bpd of real reductions. This follows a 100,000 bpd cut from the previous month’s confab, which itself came after months of steady increases as consumption rebounded from the pandemic.
The group is worried about demand and the world economy, given high inflation, interest rate rises, and the economic slowdown in China. Oil prices had dropped sharply from almost $124 per barrel in June to $84 per barrel just ahead of the meeting.
But the US lobbied hard against cuts, wanting to contain prices and inflation ahead of the crucial midterm elections on November 8. It argued that the market remained tight and that the decision could have been put off for a month to allow for the impact of the European ban on Russian oil imports on December 5. The Biden administration’s pleas were unavailing.
The US “shale revolution,” which from 2010 unlocked billions of barrels of oil and trillions of cubic feet of gas hitherto inaccessible, led to heady predictions that the US no longer needed to pay attention to the Gulf. As a result, Washington believed it could draw down its military and diplomatic presence there in a “pivot to Asia.”
As it had since Richard Nixon’s Project Independence, the US saw energy security in terms of self-sufficiency. Energy experts warned repeatedly that the country remained connected to the world market. But after a decade of fruitless Middle East wars, presidents sought to run foreign policy on the cheap by outsourcing it to the energy business.
Barack Obama’s tenure was buoyed by sharply rising US oil and gas output. He eventually lifted the long-standing ban on exports of crude oil, containing global prices. This enabled stringent sanctions on Iran in pursuit of a nuclear deal, and covered for the loss of Libyan output during and after the 2011 overthrow of Muammar Qaddafi.
The Gulf producers’ struggle to compete with shale caused the oil price crash in late 2014 and OPEC price war, then the formation of the OPEC+ alliance with Russia and other important non-OPEC producers in late 2016. Saudi Arabia saw that OPEC could not fight both shale and Russia simultaneously.
Donald Trump was mainly able to coast through his presidency on moderate prices. He put pressure on Gulf states to raise production to support renewed sanctions on Iran, only to blindside them in November 2018 with waivers that pushed down prices. But, reversing course, when oil prices crashed early in the pandemic, he threw his weight behind a renewed production deal in calls with Vladimir Putin and Crown Prince Mohammed bin Salman, intended to rescue the domestic US industry.
The shale revolution now seems to have run its course as investors prefer cash to growth. American oil output will continue rising for some years, just not fast enough to meet global demand expansion or cause a price crash.
Oil companies blame an unfavorable investment environment on the Democrats, although nothing tangible Biden has done will have any significant impact on near-term production. Nevertheless, constrained by the environmentalist agenda of his party, Biden is unlikely to shift his rhetoric enough to encourage more activity from the Texas oil barons or their Wall Street backers.
The US remains a significant net oil exporter, as it has not been since the late 1940s. But it has lost the role of swing producer it held for the decade from 2010. High oil prices are good for the US economy on aggregate, and especially for investors. But they are bad for consumers, inflation, and for the majority of states that are not major producers – most of those Democrat-voting or electorally competitive.
So the US administration responded furiously to the cuts, and blamed Saudi Arabia. Washington pointed to dangers to the world economy, and to the boost to Russia, sustaining its war in Ukraine.
Riyadh, by contrast, defended its position and was eventually supported by the UAE, Bahrain, Oman and Iraq. It pointed to the concerns over oil demand and low levels of spare capacity. Its foreign ministry said the decision was unanimous (as OPEC decisions must be), “purely economic,” and aimed to limit price volatility. There is also some suspicion that Saudi Arabia now favors higher oil prices to fund its diversification, such as the $500 billion new city Neom, although local investment bank Al Rajhi believes it is budgeting for next year at about $76 per barrel.
The White House will fall back on old tools, and try out some new ones. It has used the Strategic Petroleum Reserve (SPR) far more actively than under any past president, as a price management mechanism. The lunatic concept of banning US oil exports again has circulated. A renewed Iran nuclear deal, which would restore Iranian oil exports, seems off the table for now.
Otherwise, its main leverage on OPEC+ and specifically Saudi Arabia lies outside the energy field, in denying arms sales and the provision of defense. If the US were ever “energy dominant,” it has to adapt to returning to energy submission. But the superpower has other foreign policy tools, and the Gulf oil producers need to beware how an angry Washington might use them.
Robin M. Mills is CEO of Qamar Energy, and author of “The Myth of the Oil Crisis.”
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