OPEC pulls global market levers again
Remember OPEC? The very name of the Organisation of the Petroleum Exporting Countries sent shivers through the industrial economies in the 1970s. Reporters camped outside its meetings, waiting to tell audiences if another “oil shock” was in the pipeline, resulting in long queues at petrol stations and finance ministries bracing for another burst of stagflation.
Now OPEC is back, playing a very different game but still with profound geo-strategic effect. The group’s decision last week to keep crude oil production at current levels put the oil price down to five-year lows, leading to a bath in foreign exchange and sharemarkets for energy companies and energy-exporting countries. It’s not yet clear how long the group, led by Saudi Arabia, will keep up production. But if it does, the ripples will travel far and wide.
In Australia, though oil and gas exporters won’t be happy, it will help the Reserve Bank rebalance the economy by bringing down the dollar’s value and lowering fuel costs for domestic consumers. Elsewhere it will also be a boost for net oil-importing countries, including in our region China, South Korea, Japan, India and these days Indonesia (which left OPEC years ago when it stopped being a net exporter), while notably helping the Europeans and to some extent the Americans.
The biggest loser as the oil price drops below $US70 a barrel is Russia, where the value of the rouble has dropped by 10 per cent this week. Vladimir Putin will be hoping that winter demand in Western Europe will tighten prices, but his state finances depend on oil staying above $US100 a barrel. Putin had to cop another blow on Monday when the European Union forced him to abandon a planned $US40 billion pipeline through the Black Sea to deliver gas to Europe without having to cross Ukraine.
Another victim of the falling oil price is Iran, which also needs a price above $US100 to sustain its government budget. The low price means it can’t shrug off the international sanctions designed to bring it to an agreement on rolling back and capping its nuclear weapons program.
The Saudis are quietly co-ordinating their moves with the United States, after a meeting between US Secretary of State John Kerry and King Abdullah in September. There will be some collateral damage for the US from this grand strategic play. Its big producers can survive if the price settles above $US70, but smaller outfits working “tight” shale deposits will now be producing at a loss. Frackers aren’t very popular among Americans anyway.
Hong Kong’s streets may be clear of student protest by the time this is published, but Beijing can hardly say it has won the argument about the genuineness of the free and universal elections it promises for the special territory’s chief executive in 2017, the 20th anniversary of the handover from British rule.
Protest at the Chinese plan to have all candidates vetted by a stacked committee for their “patriotic” views is bound to recur. Meanwhile, the existing chief executive, former real estate figure Leung Chun-ying, is surely a dead duck after the protests ran for two months, plus the recent revelation of his own questionable payment of £4 million for helping the sale of London-listed property firm DTZ to Australia’s UGL engineering and property group for less than a competing offer.
In another outpost of Greater China, Beijing’s plans for creeping reunification of Taiwan got a setback in elections last Saturday for the island’s 22 mayoral positions. The Taiwan-nationalist Democratic Progressive Party tossed the Kuomintang, the Chinese Nationalist Party, out of several city halls. In the capital Taipei, normally a KMT stronghold, an independent also defeated Sean Lien, son of former vice-president Lien Chan, a KMT stalwart favoured by Beijing, which in 2010 awarded him its Confucius Peace Prize, set up in reaction to Norway’s impudent move to give the Nobel Peace Prize to jailed dissident Liu Xiaobo.
The sitting Taiwan president, Ma Ying-jeou, resigned as KMT chairman to accept responsibility. His efforts to ease cross-strait tensions through closer economic and social ties with the mainland seem now to have hit a political wall, just 15 months ahead of the March 2016 elections in which the DPP could regain the presidency.
The marital life of Thailand’s Crown Prince Vajiralongkorn continues to intrigue his future subjects, though public discussion is constrained by the lèse-majesté law.
Things did come out into the open, however, with publication a week ago of a letter from the prince ordering the government to strip six relatives of his current consort, Princess Srirasmi, of a royally bestowed family name. This follows the busting of a criminal ring of police officers, allegedly led by a police general, who ran illegal casinos, smuggled oil and laundered money. Television footage showed police investigators using a backhoe to break into an underground vault containing their gold bars, Buddhist amulets and property deeds.
The now de-ranked relatives of Srirasmi, a commoner who was a lady-in-waiting when she secretly became Vajiralongkorn’s third wife in 2001, were linked to the case, in vague terms, of course. “This is an important case, a sensitive case,” police chief Somyot Poompanmoung said. “Sometimes we cannot reveal deep information and detail.”
It doesn’t look good for the princess, who appears likely to follow the prince’s two previous consorts into the divorce courts, accused of misbehaviour. Srirasmi last came to note when she was filmed topless at a poolside birthday thrown by the prince for his dog. She doubtless has plenty of mud to throw back, but alas her case will come under the lèse-majesté law even in court.
Vajiralongkorn is not only said to have another lady lined up, but to be talking yet again of “settling down” as his own succession to the throne looms. The Thais have heard this all before, and most would much prefer his sister, Princess Sirindhorn, to succeed the ailing King Bhumibol Adulyadej, who turned 87 this week. Another divorce for the crown prince would make the line of succession even more uncertain. He has four grown-up sons from wife No. 2, banished to America, a nine-year-old son from Srirasmi, and a princess each from No. 1 and No. 2. A recent change allows female succession, with the sitting king having a say.
In another realm of Buddhist calm and contemplation, Sri Lanka, the election process is getting increasingly fraught as more ministers peel off from President Mahinda Rajapaksa’s ruling party to join the breakaway candidacy of Maithripala Sirisena for the January 8 presidential election.
Rajapaksa says the opposition is part of an “international conspiracy” aimed at hauling himself and other heroes off to a war crimes tribunal for having rid the nation of the Tamil Tigers in 2009. Reports are flooding in about misuse of state property and resources, intimidation by police and the Sinhalese chauvinist outfit Bodu Bala Sena, and preparation of fake ballot papers.
The most interesting support for Rajapaksa has come from Mahinda Amaraweera, appropriately the minister for disaster management in the bloated cabinet. Amaraweera last week urged voters not to topple the government as that would limit the chances of further corruption. Its members had amassed all the money they need by now, after 10 years in power. If Sirisena’s opposition came to office, they would have to start afresh.
This article was first published in the print edition of The Saturday Paper on Dec 6, 2014 as "OPEC pulls global market levers again". Subscribe here.