(Bloomberg Opinion) -- As the Covid-19 virus hit demand for oil, OPEC kingpin Saudi Arabia wanted an urgent meeting among the cartel’s members and their international partners in order to bring in deeper and longer output cuts. Russia didn’t, and now the emergency gathering of the 23-nation coalition known as OPEC+ won’t happen. This is only the latest in a series of slights that the biggest member of OPEC’s allies has delivered to the wider group, ratcheting up questions about its potency to truly impact oil production levels and therefore prices.
So why does Saudi Arabia continue to tolerate the unwieldy situation in return for very little in the way of real output cuts? Here’s my take, with a bit of artistic license:
“The Emperor Salman and the Tailors of Rus”(1) — with apologies to Hans Christian Andersen
Salman, Prince of the Desert and Emperor of the lands of OPEC, was worried. The empire over which his country had held sway for nearly 60 years was beset on all sides by threats. His uncle, Sam, who had hitherto depended on the oil from the desert kingdom and its allies, had recently harnessed a wild beast called Shale that was threatening the riches of the realm. Salman needed to burnish his image, so he decided to take in his old suit of clothes for a makeover to restore its luster and his country’s reputation as the most important oil broker in the world.
Far to the north, in the frozen lands of Rus, there lived a pair tailors — Vladimir and Alexander — who, it was reported, could do wonderful things with the fabric called “neft.”
Over many months Salman courted Vladimir, persuading him and Alexander to give the suit an elegant new look fit for an emperor. Eventually, after much deliberation, Vladimir and Alexander agreed. Along with a coterie of assistant tailors from around the globe, they would carefully proceed with the alterations. The cuts used would be so fine as to be invisible to anyone unworthy of their position in life, or hopelessly stupid.
The tailors toiled away. At the end of each month they exhibited the progress of their work — cuts so subtle that the emperor marveled at their skill, even though he couldn’t quite make out where they’d been made. But it would never do for him to admit that he couldn’t see where Vladimir and Alexander had trimmed the fabric. After all, the leaders of the other countries in the OPEC empire were all so enthusiastic in their praise of the tailors from Rus.
Meanwhile, Salman’s kingdom was making sacrifices of its own, giving up vast amounts of treasure as Uncle Sam and the beast Shale began to woo away his friends in the east.
No matter. The suit alterations were coming along. The cuts by the tailors of Rus were things of exquisite beauty, so fine as to be almost invisible.
There was only one problem. Clearly quite remarkably stupid, traders in the markets of New York, London, Singapore and other far-flung bazaars were not impressed with the tailors’ work. No matter how long Vladimir and Alexander kept on with their clever snipping, OPEC’s reputation continued to wither.
Some began to point their fingers. “Those cuts being made by the tailors of Rus are nothing of the sort,” people said. Pretty soon, it became apparent that the Emperor of OPEC had been hoodwinked by the tailors.
But the poor emperor was trapped. Salman had invested so much effort in persuading Vladimir to lead the tailors of OPEC+ that it had become impossible to admit that their oh-so-fine cuts were illusory. And then disaster struck! A great pestilence swept the nations of the east, throwing them into disarray and slashing their trade with the Empire of OPEC.
Salman called for yet more and more cuts. But the tailors were not convinced. They were quite happy with the way things were. After all, the countries of the east were much closer to Rus than they were to the Empire of OPEC, and their own trade was holding up pretty well, thank you. “Let’s wait and see,” they said. “No need to rush into doing something unnecessary.”
It was then that it dawned on the poor Emperor of OPEC that the tailors of Rus were not the miracle workers he had thought. But even so, he wasn’t quite able to bring himself to admit that the alterations they had made were an illusion. Possibly, just possibly, those tailors would one day deliver those exquisite cuts they promised, maybe after their next get together in March.
But, the tailors' reluctance to make more cuts left Salman fuming with his closest allies. Perhaps the delicate tie between the emperor and his tailors was beginning to come unstitched.
(1) Any similarity to real life events, people and organizations, including Saudi Arabia’s Crown Prince Mohammed bin Salman, Saudi Energy Minister Prince Abdulaziz bin Salman, Russian President Vladimir Putin and Energy Minister Alexander Novak or the Organization of Petroleum Exporting Countries, are not coincidental.
To contact the author of this story: Julian Lee at firstname.lastname@example.org
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This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Julian Lee is an oil strategist for Bloomberg. Previously he worked as a senior analyst at the Centre for Global Energy Studies.
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