Last Wednesday when Mr. OPEC decided to cut production by 2 million barrels per day, a significant part of analysts saw an international cartel in this step oil as a break in Riyadh’s longstanding energy alliance with Washington. The alliance, which began around 1933, led to the creation of the Arab American Oil Company (Aramco), its nationalization by Saudi Arabia and its renaming to Saudi Aramco, and the oil embargo that once rocked the global economy.

The OPEC decision was clearly a tug-of-war between Washington and Riyadh, as it was preceded by a systematic effort by the Biden administration to persuade the de facto leading power of the international cartel, Saudi Arabia, to increase production. The demand, of course, is to have cheap oil in the global economy during an energy crisis and at the same time hurt Russia’s oil revenues, which are funding the protracted war in Ukraine. This dual aspect of the tug-of-war between Riyadh and Washington was summed up by a comment by Bill Farren Price, an OPEC veteran and head of the consultancy Enverus. Commenting on the decision to cut production and watch prices rise, Price noted that “Saudi Arabia has put the cartel on a collision course with the free world by colluding with Russia in the name of protecting the oil market when consumers of all its oil the world is struggling to cope with the rapidly rising inflation and rising cost of living.

The Biden administration is preparing to bring oil from its strategic reserves to the market, and is also looking for alternatives in Venezuela.

This was followed by a roughly 12% rise in oil prices, with West Texas crude approaching $89/bbl at the time of writing and Brent reaching $95/bbl. The growth undoubtedly indicates that OPEC, and primarily Saudi Arabia, has regained the ability to control prices for “black gold”. An opportunity he missed when the US shale revolution, the boom in oil from US shale rock, flooded the world market with oil. At that time, the market remained almost indifferent to the actions of OPEC. But now, in the midst of an energy crisis, OPEC has sought to raise prices, ignoring repeated calls from Washington, and the Biden administration has responded by bringing oil to the market from the superpower’s strategic reserves. What is evidently what he is preparing to do again while he is looking for alternatives, including extending a hand of reconciliation to Venezuela so that American oil companies can extract oil from there.

Meanwhile, the Europeans are preparing to impose a ban on Russian oil imports in December, and production cuts risk pushing the global economy into recession and fueling inflation if they bring prices back to the $120 a barrel where they were at the beginning of 2018. summer. Optimists, however, prefer to pay attention to the words of the Saudi prince and Minister of Energy of the kingdom Abdulaziz bin Salman, who stressed that in reality production will decrease by only 1-1.1 million barrels per day, as many countries do. somehow managed to produce as much oil as their quotas allowed.

Saudis want high prices for “black gold”

OPEC+’s decision to cut oil production undermines President Biden’s efforts to prevent a rise in gasoline prices ahead of the midterm elections, as well as to limit Russia’s oil revenues, which go to finance the war in Ukraine. However, he also notes the failure of his summer attempts to reach the Saudi prince diplomatically.

The decision by OPEC and its allies highlights the foreign and economic policy challenges facing the US at a time when the global economy is in danger of recession and the political exploitation of energy resources is becoming a key component of the war in Ukraine. After all, it was received at the OPEC headquarters in Vienna, where the vice-president of the Russian government, against whom Washington imposed sanctions, was present. This was preceded by a concerted but ultimately unsuccessful diplomatic effort by Washington to prevent production cuts. So the decision was a signal that President Biden’s influence with the superpower’s allies in the Persian Gulf is far less than he had hoped. It also demonstrated that even at a time when the importance of oil as a source of energy should be downplayed, OPEC+ is acting in its own interests. In this case, it was much more important for the participants to keep prices high than to punish Russia for invading Ukraine.

A few days before the OPEC+ meeting, the White House tried to prevent this decision by calling Saudi Arabia, which the American president visited in July for the same purpose. As his government officials pointed out at the time, it was a politically risky move whose main goal was to secure an increase in oil supplies, even as he faced criticism for repairing relations with a Saudi prince, the moral criminal in the murder of journalist Jamal Khashoggi. . The tacit understanding that emerged from Biden’s visit was that Saudi Arabia would increase production by 750,000 bpd, and the United Arab Emirates would follow suit, increasing its own production by 500,000 bpd. The result will be lower prices for gasoline and oil. However, everything turned out to be wrong.

Demonstration of force and “back” to Russia by the international cartel of oil producers

Saudi Arabia initially ramped up production in July and August, but refused to maintain higher levels until the end of the year. His leadership, like all OPEC countries, saw with fear the specter of a global recession leading to prices falling below $120 a barrel and shrinking to levels sometimes even below $80, so the Saudis decided to act. The OPEC production cut may not be as big as it sounds, but its impact on gasoline prices will be much larger. And apart from the impact this will have on inflation and apart from any other political implications, it makes it clear that the Arab countries do not agree with the West’s attitude towards Russia, which is now a member of OPEC.

An attempt to cut Russia’s oil revenues has failed. The OPEC decision is helping Russia charge higher prices to offset the large discount it has been forced to sell its oil to China and other countries in exchange for not participating in international isolation. In practice, OPEC’s decision will lead to an increase in the income of all its member countries, including Russia and Iran. Some Gulf analysts were quick to interpret OPEC’s stance as a direct blow to Mr. Biden. “This is clearly political in nature and has nothing to do with money,” commented Cinzia Bianco, head of the European Council for Foreign Affairs. However, the Saudis deny the allegations, as do many OPEC officials who say the decision to cut production was made for purely technical reasons. “This is a move that is categorically not hostile to President Biden,” said Saudi analyst Ali Shihabi, who insists that “the goal is to keep the price of oil in an acceptable range.” The same analyst explains that oil is so important to the Saudi economy and to Prince Mohammed’s plans that the need to keep the country’s main commodity profitable has overshadowed other issues. “They are trying to provide what keeps them alive,” he emphasizes, to conclude that oil is “what keeps the Saudi kingdom alive and everything depends on it.”

Other oil watchers are interpreting the OPEC decision as a result of the turmoil in the markets in recent years, as well as the recession that now seems to threaten the global economy. European efforts to cut off Russian oil and natural gas from the world market have led to the fact that most of the Russian oil ended up in Asia, and the Europeans began to look for alternative energy suppliers. During this turbulent time, the Saudis want to show that oil is still important and that they can control the market. “This is definitely a show of strength on the part of the Saudis,” said Karen Young, senior fellow at the Center for Global Energy Policy at Columbia University. And he adds: “They claim they are capable of shaping this market.”

New York Times

fret

Expressing dismay at OPEC’s decision to cut oil production, the White House stressed that “in view of this move, the administration will consult with Congress and consider other instruments and other agencies to limit the control exercised by the international cartel over energy prices.”

Definition

Declaring the determination of the international cartel to maintain its dominant position in the oil market, as well as to distance itself from Washington’s position, Saudi Energy Minister Abdulaziz bin Salman stressed that “OPEC is not only here to stay, but will remain the force that will ensure stability.”

Price

Asked by reporters whether OPEC’s position to ignore Washington’s pleas and cut production is causing prices to rise again, Haytham al-Gais, secretary general of the international oil cartel, stressed that “everything has a price, and energy security also has a price.” price.”