博彩对冲

Historians of the future may come to see the 鈥淥il Age鈥� as bookended by the eerily analogous events of 1973 and 2023. That 50-year period opened with the Arab Oil embargo, triggered by US support for Israel in a war, which began with a surprise Arab attack. That embargo put Opec members definitively in charge of crude pricing. Gulf Arab oil states got rich, and in a quest for security, signed petrodollar recycling accords that brought their wealth back into the international system through US avenues, stabilizing the dollar and extending its international supremacy. This year, Opec again gathered amid war in Israel. But its near-term crude price talks were overshadowed by COP28 debates over whether oil has a long-term future 鈥� with an Arab oil state official chairing the UN climate talks. Petrodollar exclusivity is under assault. Uncertainties abound. The oil dynamic of the last half century will not come through unscathed.

It's easy enough to make the case for 1973 as a start date for the Oil Age we鈥檝e known for 50 years. As 1973 opened, most Opec nations were in the end stages of partial or complete nationalization of oil producing operations previously controlled by the 鈥淪even Sisters.鈥� Most of these newly decolonized or recently created states were poor, with scant expertise. The Seven Sisters still largely controlled oil prices, and producing country income was meager.

Then came an Egyptian and Syrian attack on Israel, which broadened into a wider war as Israel gained the upper hand. In an effort to dissuade the US and some European countries from supporting Israel, Saudi Arabia and other Arab oil exporters cut production and embargoed the US and a few others. Crude prices quadrupled. The US stuck by Israel, but the Arab producers and their Opec allies held onto much of their income gain. Money poured in. The 鈥渕ajors鈥� lost reserves and control over pricing, but the US government got a petrodollar deal that brought much of the Opec oil bounty into US banks and Treasury bonds. Once oil demand rebounded from the 1970s oil crises, it entered a growth path from which it has not seriously deviated. Yet.

The case for 2023 as the end of that era seems less obvious. Oil companies and Arab exporting countries are hale, hearty and brimming with cash after the painful plunge in fossil fuel demand and prices during the 2020-21 pandemic provided what many interpreted as a preview of these fuels鈥� terminal collapse. The global status of Saudi Arabia and other Gulf states and the Wall Street status of Western oil majors both reflect that renewed heartiness 鈥� as do the United Arab Emirates' (UAE) hosting privileges for this year鈥檚 UN climate gathering.

A closer look suggests gloomier prospects for oil, though. Opec 鈥� now in Opec-plus cooperation with Russia and others 鈥� continues to shut in production in a struggle to keep oil prices afloat, much as Opec did after the two crude price leaps of the 1970s. But this time, resurgent demand for oil won鈥檛 come to Opec鈥檚 rescue, as it did in the late 1980s. On the contrary, the International Energy Agency says China鈥檚 oil, natural gas and coal demand will all be declining by 2030. Others suggest China鈥檚 about-turn on fossil fuel use could come as soon as 2024, thanks in large part to solar power and electric vehicles. If China passes peak demand, will the world be far behind?

Striking Opec, COP Contrast

Nov. 30 contained the story in a nutshell: Opec-plus ministers held a Zoom call and agreed to add another nearly 700,000 barrels per day in 鈥渧oluntary鈥� cuts to Saudi Arabia鈥檚 and Russia鈥檚 now-extended 1.5 million b/d in such reductions, in an effort to prop up oil prices that shed 15% over the previous month. Prices fell further, amid skepticism that cuts were reliable and adequate to balance expected weak demand in early 2024. At the same time, 70,000 people were gathering in Dubai for a two week or longer spectacle involving government, business and civil society leaders from around the world and aimed at limiting climate change by halting emissions of CO2, methane and other greenhouse gases.

The contrast between the events could hardly have been greater, although Gulf oil exporters figure prominently in both.

Much of the debate in Dubai is on such questions as how much developed countries will pay to help the Global South develop on a low-carbon path and pay for damage resulting from climate change. This has few immediate implications for the oil industry, but success would narrow the field of candidates to replace China as the global engine of oil demand growth. Another proposal, to triple renewable generating capacity and double energy efficiency gains by 2030, would be bad for gas and coal 鈥� and fuel efficiency isn鈥檛 exactly what the oil industry needs to guarantee longevity. The 鈥済lobal stocktake鈥� that gets top billing in Dubai may well see key oil consumers up their emissions reduction pledges, adding to pressure on oil and gas usage. Oil companies and countries are pushing methane reduction as their contribution to decarbonization.

Despite the dangers all this poses to the future of fossil fuels, the preoccupation of the many oil state representatives and Western oil lobbyists in Dubai is on less practical matters. What should the conference say about whether coal, and perhaps oil and gas too, should be 鈥減hased out,鈥� or 鈥減hased down,鈥� implying more wriggle room, or eventually avoided in 鈥渘on-abated form?鈥� In other words, carbon capture, a marginal proposition at best, given its huge costs.

It鈥檚 hard to see all these machinations buying anything more than time. Of course, time is valuable in its own way, and delaying a Death of Oil declaration for a bit longer may be worth the effort if it bolsters market and investor sentiment on oil. The Gulf oil states and other producers need time to build not only their sovereign wealth funds, but also their national power and status, which serve to attract still more outside investment.

Oil and War

This historical movement away from oil is the crux of why 2023 is likely to be viewed as a closing bookend to the Oil Age that began in 1973, when time was on Opec鈥檚 side. Oil demand might stumble, but it would never fall for long. That was the assumption, and it proved valid for 50 years. Now time is the enemy.

How much does the Israel-Palestine war matter to this shifting configuration of oil and energy events? The extra nearly 700,000 b/d added on Nov. 30 to existing 鈥渧oluntary鈥� production cuts have been ascribed by some to Arab anger at wholehearted support for Israel from a US president who tends to view expensive gasoline as a threat to his re-election. Prior to Oct. 7, Saudi Arabia looked set to recognize and deal with Israel in return for civilian nuclear aid and new security guarantees from the US, a deal that might have weakened Saudi resolve to keep oil prices high. That now seems implausible. Instead, Saudi, Abu Dhabi and other Gulf State interest may grow in China鈥檚 request to shift oil trade off dollars and onto yuan, further undermining the petrodollar order that came out of the 1973 Arab oil embargo.

None of these twists and turns is fundamental, though. Oil was on its way out before Oct. 7 and it still is. Perhaps what the analogies of 2023 oil events with 1973 underscores more importantly is the potential they carry for a fundamental shift in Middle East power politics. Oil and gas have been the foundation for those politics over the last 50 years, as the wealth they brought 鈥� combined with the disruptive aftershocks of Israeli ascendance in the Levant 鈥� shifted power towards Saudi Arabia, the UAE and Qatar. The US provided military support and financial services for structures built on that foundation. That foundation is now crumbling. Only time will tell what will replace it.

Sarah Miller is a former editor of Petroleum Intelligence Weekly, World Gas Intelligence and Energy Compass. The views expressed in this article are those of the author.

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