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The world is in a slow energy transition to renewables, which has made it difficult for OPEC to maintain price stability. This transition lies at the heart of Saudi Arabia and Russia’s efforts to find new ways for stabilizing oil prices, says Prof. Timothy Mitchell

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SHARMINI PERIES: It’s The Real News Network. I’m Sharmini Peries, coming to you from Baltimore.

Russia and Saudi Arabia are discussing the possibility of establishing a new international organization to regulate the production of oil; an organization that would replace OPEC or be adjunct to OPEC, with a more powerful central control by Saudi Arabia and Russia. Now, OPEC, the Organization of Petroleum Exporting Countries, founded in 1960, it does not include the U.S. or Russia, although Russia is a major oil exporting country. Two weeks ago, President Trump boasted that he told Saudi Arabia to boost its oil production. Following this declaration, a war of words erupted between Trump and the Iranian government over OPEC and the price of oil. Iranian officials said that Trump’s policies are driving oil prices up, and Trump retaliated by blaming OPEC for rising oil prices.

On to talk about all of this with me is Timothy Mitchell. He is a professor at Columbia University. His books include “Rule of Experts” and “Carbon Democracy: Political Power in the Age of Oil.” Thanks for joining us today, Professor Mitchell.

TIMOTHY MITCHELL: Good to be here.

SHARMINI PERIES: Tim, how likely is it that Saudi Arabia will form such an institution with Russia, which would really seriously undermine U.S. interests in the Middle East, considering that Saudi Arabia is a staunch ally of the U.S. and its biggest rival right now is Iran? And of course, U.S.-Iran relations are also, stakes are being raised here, at least in terms of war of words. But the Trump administration has a particular angst for Iran, here.

TIMOTHY MITCHELL: It’s hard to say how likely a formal institution will evolve, but already for 18 months, a little more, Iran, Saudi Arabia, and Russia have been collaborating to try and manage the price of oil. The first agreement was in the fall of a year and a half ago to try and cut the production of oil by an amount sufficient to raise the price back towards its current level of $70-80 a barrel. They’ve now met again last month and agreed to make additional cuts, and continue to try and maintain the price as it is.

So they found a way to collaborate. And there were discussions afterwards that they might make this more formal, but I don’t think that is necessary for them to continue to do what they’re doing, which is to, as I say, find ways to limit the price of oil and to limit the production of oil so that the price stays up. I mean, it’s a very difficult time for these countries so dependent on the vast production of oil, because the world is going through an energy transition. It’s on the cusp of moving away from the forms of fossil fuel energy that have dominated the global economy, oil over the last century, coal over the last two centuries. And that transition is going to unfold over the next 30-50 years. And even as we’re in the beginning of that transition it’s very, very difficult. It’s proven very, very difficult over the last decade, 15 years, to maintain a stable oil price. And that’s what these countries need.

And when the price of oil collapsed 2014-2015, these countries, Russia and Saudi Arabia more than any others that are so dependent on the export of oil suffered enormous financial crisis. So I see them continuing to collaborate to address this problem, regardless of the U.S. And it’s not clear that the U.S. itself is so opposed to oil prices being in that sort of range, because of course it is those high oil prices of that order, $70-80 a barrel, that enables the U.S. to start pumping its own new reserves of tight oil, shale oil, from places like West Texas.

SHARMINI PERIES: Tim, why is it that Saudi Arabia and Russia want this kind of centrally-organized control of the oil industry outside of the OPEC mechanism?

TIMOTHY MITCHELL: Well, I mean, the OPEC mechanism itself has been less effective over the last couple of decades, and it was really only in the ’70s, early ’80s that OPEC was able to collaborate systematically. It was less effective after then partly because it didn’t need to be, because there was the whole set of other factors that led to dramatic reductions in the production of oil. The Iran-Iraq war, the U.S. invasion of Iraq, U.S. sanctions on Iran, the whole series of political events of that sort of, that continually set back the production of oil. So the kinds of surpluses that have been seen in the 1980s and in other periods weren’t, the OPEC was formed partly to deal with, weren’t an issue.

And so OPEC hasn’t had to find a way to act collectively to manage oil prices until more recently. And by the time it did, Russia had come on the scene as, once again, a major oil exporter. Enormous increase in Russian exports over the last decade or more. And so the ability to collaborate with non-OPEC members, in particular Russia, Russia more than any other non-OPEC state, was suddenly enormously important. So as I say, the significance of it is not so much an OPEC-Russia agreement as a Saudi-Russia agreement. Saudi Arabia and Russia are two of the three giant oil producers in the world, the third being the U.S. And unlike the U.S., the production of oil is, is more or less centrally controlled, to the extent of production, the ability to cut back production. And so those are the two countries that can act decisively to affect supplies of oil onto the market. And if they do it in collaboration so that no single country takes the hit of reducing supplies, they can all benefit from an increased price.

So I think it has its roots in those kinds of aspects of the, of the current situation. The U.S., as I say, is different. The only significant new oil coming, becoming available in the U.S. is tight oil, or shale oil. It’s far more expensive to produce than conventional oil, and it needs these high prices in order to begin to move it towards profitability. It’s not something actually that’s been profitable so far, but something that the U.S. can profit from if the price remains high.

SHARMINI PERIES: And do you expect OPEC as an organization to still remain intact, even though some of its members might go off and form other alliances, like the one we’re talking about?

TIMOTHY MITCHELL: Obviously the key rift within OPEC is that between Iran and Saudi Arabia. And that’s one that perhaps makes it more difficult to coordinate through through OPEC than it might have been in the past. But as I say, I think more important than that is that, it’s really the two giant producers, Russia and Saudi Arabia, that are in a position to affect the global oil price. Iran is in the next tier of major producers, less than half, a third of the size of the big three. And of course it had faced, and now faces again, the threat of sanctions imposed by the U.S., making it very difficult for it to to maximize its oil production.

So coordination in OPEC seems less important to the current difficulties the giant oil producers are facing, in terms of trying to continue to maintain very high prices and extraordinarily high profits from the production of oil. So it’s, I don’t think OPEC is going to disappear or die away. But I think the critical dynamic is now the one between Saudi Arabia and Russia.

SHARMINI PERIES: All right, Tim. Now, give a sense of the ebbs and flows of oil production and prices. Now, towards the end of President Obama’s second term in 2016, oil prices sunk for the first time to pre-Iraq invasion levels of 2002. Now, the general wisdom was that Obama is encouraging OPEC to increase production and lower the cost of oil in order to strangle the Russian economy, which it was preoccupied with at the time. Now, since Trump has come into office, oil prices have been recovering quickly. It’s back up. Now, do you think oil prices are simply manipulated for political purposes? Or are there economic factors of member states that are also contributing to the price of oil?

TIMOTHY MITCHELL: I think it’s both. As I say, one has a number of countries, with Russia and Saudi Arabia at the top, who are enormously dependent on the production of oil and the revenues from oil; 50 percent or more of their government budgets, 70, 80, 90 percent of export revenues. So it’s a very different situation even from a major producer like the U.S., which has a much more diversified economy. So there are direct political economic factors in attempting to maintain a certain price of oil.

Now, of course, the volatility of the price of oil has been a problem for a long time. Around the years 2000-2005, the price of oil has started to go up, and was a major contributing factor to the financial crisis of 2007-2008, increasing from a level where it had been somewhere between $20-30 a barrel, to suddenly shooting up not only to the levels of today of $70-80, but at one point to over $145 a barrel. And that was due to the fact that it was becoming increasingly difficult to find new supplies of oil as the conventional sources of oil, relatively cheap to produce, were not running out, but were failing to be extended. And in that situation the price of oil jumped enormously. But then, of course, it crashed. Because when it goes that high, all kinds of uses of oil switch to alternative sources, or cut their consumption, and other producers start bringing-. Other producers of oil start bringing marginal supplies on. So then it collapses, and that’s what happened after, after that period through 2008-2014. It began dropping, and then it collapsed all the way down again to the mid-$20s per barrel, a third of what it is today.

And it was at that point after 2014 that the Saudis, the Russians, and others, plunging into a financial crisis, started looking for a way to get the oil prices back up. They thought by-. Initially, in fact, the Saudi policy had been to leave those prices that low, because potentially one could kill off these new producers, particularly the shale producers in the U.S. But eventually the financial needs of the Saudi state, and particularly in the case of Russia, where the financial situation was even more dire, brought them together over a program to try and restrict supply and force prices back up again. And that’s where we’ve been over the last year and a half, with those prices rebounding from a low of the mid-$20s up through the $40s and $50s, and now $75 or so a barrel.

So it’s, it’s a complicated thing, because we are going through this energy transition, as I mentioned before, which is partly as particularly the leading industrial countries realize they’ve got to adapt as quickly as they can to the pledges they’ve made under the Paris climate agreement to largely phase out the use of fossil fuels and to meet those pledges of 2 degrees or even 1.5 degrees of warming above pre-industrial levels. That means we’ve got to stop using oil and gas by about 2050, within 30 years. And several, a large number of leading industrial countries, are starting to take that seriously, talking about the phasing out of vehicles using using gasoline, for example.

And in that context, and even countries like Saudi Arabia realizing they’re not going to be able to rely beyond another generation from now on the massive export of oil, to start thinking about new kinds of ways to, to manage the price of oil. I think that’s the moment we’re at. And it’s a very uncertain moment because of the variety of different factors. The difficulty of finding new sources of oil, the impact of climate policies, the destruction of demand for fossil fuels in general as renewables become rapidly much more affordable. It’s a very uncertain moment for those so dependent on the production of fossil fuels.

SHARMINI PERIES: All right. Prof. Timothy Mitchell I’ve been speaking with, who is the author of “Carbon Democracy: Political Power in the Age of Oil.” I thank you so much for joining us, and I’m going to invite you to come and unpack the book further with us. I thank you so much.

TIMOTHY MITCHELL: I’d love to do that. Thanks very much. It’s been great talking to you.

SHARMINI PERIES: And thank you for joining us here on The Real News Network.

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Timothy Mitchell

Timothy Mitchell is a political theorist and historian who writes about the the Middle East, energy politics, and the role of economics and other forms of expert knowledge in the government of collective life. Tim is also a professor at Columbia University. His books include "Rule of Experts" and "Carbon Democracy: Political Power in the Age of Oil." (See more at