OPEC the Floundering Cartel
Almost thirty-five years ago, President Reagan went to the British House of Commons and said “freedom and democracy will leave Marxism and Leninism on the ash heap of history.” Reagan chose his words carefully, using a phrase – the ash heap of history – very similar to the one used by the Russian Communist revolutionary Leon Trotsky against his political enemies. Within a decade, the Berlin Wall was no more and neither was the Soviet Union.
Now it appears OPEC, another nemesis of the US from the prior century is heading for the ash heap of history as well, not because of geopolitics, but because of the hard work of engineers. A combination of fracking, seismic imaging, and horizontal drilling has led to a huge reduction in the cost of drilling and an increase in the supply of oil and natural gas, not just in the US but around the world.
Case in point: in the past twelve months the US has run an $8.4 billion goods trade surplus with OPEC, including Algeria, Angola, Ecuador, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates, and Venezuela. What a difference from less than a decade ago. Back in 2007- 08, the US ran a $190 billion goods trade deficit with OPEC.
The reason for the change in the trade balance is that the US is importing much less from OPEC, $64.8 billion in the past twelve months versus $253.4 billion at the peak in 2007-08. No wonder so many of these countries are in turmoil. They’re losing money and also losing the political leverage they used to have over the US.