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Whither Oil?

Oil remains the lifeblood of the global economy, and will not easily be phased out just because the industry is undergoing a crisis. Until policymakers and climate activists grapple seriously with the political economy of oil, the quest for net-zero emissions will be more aspirational than realistic.

LONDON – There are no ready solutions to the dilemma of oil. Daily life as most of us know it depends on the production and transportation of oil, yet consumption of hydrocarbons is a key driver of climate change, which jeopardizes the long-term habitability of the planet. Worse, the need to supply the world with affordable oil has long been a cause of poor governance in the countries that produce it, as well as a source of geopolitical instability. That is unlikely to change anytime soon.

Today’s global economy depends principally on the oil output of three countries: the United States, Saudi Arabia, and Russia. But the position of the US relative to the other two will not last, because American shale-oil output will probably begin to decline from the end of this decade onward.

The need for some kind of modus vivendi among the three major oil producers – and the difficulty of finding one – became abundantly clear during the COVID-19 lockdowns earlier this year. After maintaining an oil alliance (“OPEC Plus”) since November 2016, Russia and Saudi Arabia ended up at cross purposes when Chinese demand for oil plummeted under pressure from the coronavirus-induced slump. Frustrated over Russian President Vladimir Putin’s refusal to agree to new production cuts, Saudi Crown Prince Mohammed bin Salman (MBS) decided to flood the market in a bid to increase Saudi Arabia’s market share.