All commodities are equal, but some commodities are more equal than others. Oil accounted for 46% of the global energy supply at the peak of Arab oil embargo in 1973. It overshadowed the consumption for other energy fuels: 29% for coal and 21% for natural gas. Fast-growing rivals to fossil fuels, such as wind, solar and geothermal energy, together amounted to little more than 1% of the global energy supply. So what has changed? Nothing! Today, oil has grown from a mere energy provider to an essential political instrument. This is evident from the latest deal struck in Vienna between the OPEC (Organization of Petroleum-Exporting Countries), comprising of 14 nations, and major non-OPEC countries, Iran and Russia which some gurus gave a 30% chance of survival. The announcement to curb oil production is the first since the financial crisis of 2008.

The oil producers’ cartel pledged to remove 1.2m barrels a day (b/d) from global oil production, provided non-OPEC countries such as Russia contribute with a further 600,000 b/d cut. This would amount to 2% of global production, way above what the markets were expecting. The recent development has sent a strong signal about the rekindled power of the OPEC. The announcement boosted Brent oil prices to $50/ barrel, marking a possible silver lining for countries like Venezuela that are almost on the verge of bankruptcy.

While gold on paper, it remains to see if the terms of the deal materialise. The volatility in the oil market is a result of the zero-sum game that everyone wants to dominate. Cutting production might mean losing market share and nobody wants to do that. Despite knowing the consequences of excessive production, countries’ production figures point exactly in the opposite direction. OPEC’s oil output set a record high in November, rising to 34.19 million barrels per day (bpd) from 33.82 million bpd in October, according to a Reuters survey. In addition to that, Russia reported average oil production in November of 11.21 million bpd, its highest in nearly 30 years. This means that OPEC and Russia alone produced enough to cover almost half of global oil demand (almost 95 million bpd).

Two factors that are important are the US shale companies and the US-Iran nuclear deal. For years before this, the fundamentals were quite simple. US was a net importer of oil and Saudi Arabia was its seller. In order to maintain the status quo, Saudi Arabia allowed the US to maintain military bases in the country and help Saudi Arabia dominate in the region. The recent nuclear deal exhibits US’ changing stance to Saudi Atrabia’s long time rival, Iran. The deal struck with Iran has allowed Iran to boost its oil production. It aims to reach its pre-sanction levels. In addition to that, foreign investment in Iran has helped the country fund propaganda (supporting the Hezbollah and other proxy wars against Saudi Arabia).

Simultaneously, the Saudis have taken a serious hit in revenues. The country’s Government Debt to GDP ratio has increased from 1.6 in 2014 to 5.9 in 2016. Even if they manage to curb their oil production to the mentioned amount in the deal, there is no guarantee that other players will play by the rules. In fact, high Brent prices will invite more shale companies in the US that will be breaking even again. In addition to that, President-elect Trump’s policies of deregulating the energy sector is only bound to increase the US’ contribution to the oil output in the coming future.

Saudi Arabia is facing extremely desperate times. The latest deal in Vienna allows Iran to exclude itself from cut due to the heavy toll that its economy has taken due to the levied sanctions. The Saudis do not have any cards left. Iran has a more diverse economy than many of its fellow OPEC members. It relies on crude-oil exports for about 25% of its budget, compared with 70% in Saudi Arabia.

The weak position is confirmed by the fact that Saudi Arabia has taken the lion’s share in cuts. It will cut production by 486,000 barrels per day, while Iraq and Kuwait will reduce supplies by 209,000 bpd and 130,000 bpd respectively. Iran, on the other hand, has been allowed to slightly increase its output. While the cuts from the OPEC are a positive sign, there is no system in place to check wild players such as Russia (which has not quoted a specific figure regarding the cut.Russia’s economy is crippling under the heavy sanctions due to its annexation of Crimea). Its Government Debt to GDP ratio has constantly increased from 6.5 in 2008 to 17.7 in 2016. Also, a number of oil field that it  has in Siberia cannot be shut down due to the danger of malfunctioning. This leaves little room for Russia to manoeuvre and experiment with the cuts and prices..

In fact, the time is right for Russia to increase production. With all major currencies falling against the dollar, it is a golden opportunity for the country to capitalise on its fallen Rouble. Higher dollar-denominated Brent prices mean more revenue in local currency for the Russians. The sheer desperation to prevent any cuts at the time was seen when Putin mediated negotiations between Iran and Saudi Arabia in order for the Vienna deal to materialise. Russia simply cannot take more hits in oil prices or production and aims to expand to China after taking hits from Europe.  Russia’s Transneft will be ready to ship 30 million tons of oil a year to China through the link by Jan. 1, 2018, V.P. Sergei Andronov said in April. China National Petroleum Corp., the country’s biggest oil and gas producer, will start laying a second domestic oil pipeline in June to allow for increased Russian crude supplies to flow to China’s northeastern city of Daqing.

This shift in oil politics is also affected by the biggest energy importers, namely India, China and Japan. “India’s oil demand will more than double to 10 million barrels per day by 2040”, oil producers’ cartel OPEC Secretary General Mohammad Sanusi Barkindo has said. According to OPEC, global demand is forecast to increase by nearly 17 million barrels a day until 2040 when it could reach around 110 million bpd. Emerging and developing economies in Asia are expected to make up roughly 70% of this growth, which is being spurred on by the region s population growth, a rapidly expanding middle class, urbanisation and industrialization. Asia’s growing importance is evident from fresh relationships that were seen in the recent Asia Summit.

The current crisis has highlighted the importance of diversification for major oil exporting countries. Iran and Saudi Arabia have both launched plans to diversify economies away from oil. Tehran’ “Vision 2025” aims at job creation, infrastructure creation and move towards a knowledge based economy and Saudi Arabia’s plan to float part of the largest sovereign wealth fund Saudi Aramco and its “Vision 2030” which includes creating 450,000 new private sector jobs. However, major institutional changes will need to take place before any significant capital starts flowing in. Women in Iran are just 17% of the total workforce while officials in Saudi Arabia say that they are not yet ready to let women drive. Both countries will need to provide sustainable environments in order to attract world’s resources to diversify away from oil.

Desperate times are ahead for a number of energy exporting and importing countries and it remains to how quickly and who breaks the terms of the Vienna Deal to win this zero sum game.