For those who remember its parameters energy crisis that rocked the global economy 50 years ago, today’s parallels can hardly be more troubling. War, US tensions with Saudi Arabia and the energy crisis. There are, of course, differences with the historical moment that brought oil embargo Arab countries against the West, turned the ten-year balance upside down and in April 1973 led the then administration of Richard Nixon to launch a strategy USA increase internal oil production with the aim of energy self-sufficiency of the superpower.

Then the oil-producing countries of the Arab world launched an economic war against the West with the use of embargo weapons, in response to the military and diplomatic support provided by Washington to Israel during the Arab-Israeli war. At the present stage, it is Washington that accuses Saudi Arabia of supporting Russia in the war with Ukraine, while the energy crisis already exists. After all, this was preceded by a long tug-of-war between Washington and Riyadh, which turned a deaf ear to the Biden administration’s insistence on increasing production. OPEC and cheap oil. And cheap oil has a double meaning in the current situation. While this is vital to the global economy, it is also important to the strategic goal of Washington and its allies to bring Russia to its economic knees and deprive Moscow of the funds that are funding its unexpectedly prolonged war.

Washington accuses Riyadh of supporting Russia and ignoring the insistent demands of the Biden administration to increase OPEC production and reduce the price of oil.

OPEC’s decision to cut production by 1.16 million barrels per day amid the energy crisis exacerbated by Russia’s war with Ukraine inevitably led to a sharp increase in oil prices. Within hours, West Texas oil began to approach $85 a barrel, and at the time of writing, it was hovering above $80 a barrel. At first glance, OPEC achieved its goal of rising prices, as a few days earlier the crisis of regional American banks and Credit Suisse caused concern around the world and led to the fact that the price of “black gold” fell to almost $70 per barrel. However, “black gold” had already recovered to almost $80 per barrel even before OPEC’s announcement of production cuts. After all, during the last year and while the energy crisis was looming, oil was close to $100 per barrel for a long time.

In a word, nothing like the incredible events of the pandemic, when oil prices collapsed, demand fell to the Tatars due to the first major lockdown, and the superpower was bathed in shale oil. After all, gone are the days when this shale revolution in the United States developed at a frenetic pace of mining. OPEC’s actions appear to be part of a power struggle with Washington, which has placed a significant amount of its strategic oil reserves on the world market since last year to prevent further price increases.

Impact on India and Japan

If the ominous predictions of analysts such as Goldman Sachs that the price of oil will jump to $100 a barrel come true, then it will not be the United States, which OPEC could target, but all oil-importing countries that will suffer the most. . And some of them are relatively poor or developing countries, such as India and the countries of Southeast Asia. Some other countries, such as Japan and South Korea, certainly have strong economies, but they are sure to pay a heavy price for geopolitical tensions that ultimately do not concern them.

India is the world’s third-largest oil consumer and remains a regular customer of Russia, buying Russian oil at a discount following the imposition of Western sanctions. India’s crude oil imports rose 8.5% in February compared to the same period last year, according to Indian government data. And, as Henning Glostein, director of Eurasia Group, points out, while Indians continue to benefit from cheap Russian gas, they have already been hurt by rising coal and natural gas prices. And, as he notes, “if the price of oil continues to rise, even cheap Russian oil will become expensive and hurt the Indian economy.”

Countries that import oil, not the US, will suffer from a surge in oil prices.

For Japan, oil is the most important source of energy, as it accounts for about 40% of its total energy resources. As the International Energy Agency notes, Japan “has no appreciable domestic hydrocarbon production and is inevitably almost entirely dependent on crude oil imports. Between 80% and 90% of them come from the Middle East.” The same applies to South Korea, which covers most of its energy needs with imported oil. South Korea and Italy depend on oil imports for at least 75% of their energy, analysts at the independent research firm Enerdata emphasize. And of course, both European countries and China itself have a high degree of dependence on oil. However, with regard to energy-intensive China, its dependence has been somewhat limited, as it also has domestic production of “black gold”, while Europe as a whole depends mainly on natural gas, coal and nuclear energy.

Finally, the blow will be big for some emerging markets that do not have enough foreign exchange reserves to finance large volumes of oil purchases if prices are high and reach $100 a barrel. Türkiye, Argentina, South Africa and Pakistan are among them. However, among analysts and market participants, the prevailing opinion is that oil can reach $100, but it is not going to stay at such high levels for a long time. In a word, expectations converge on the stabilization of prices for “black gold” at today’s levels, somewhere between 80 and 90 dollars per barrel.

Reuters

Fighting inflation is getting harder

Washington’s reaction to the news that OPEC continues to cut oil production was expected. A White House spokesman said “the move is not prudent at this time.” And the superpower’s relationship with the Saudi kingdom remains strained despite President Biden’s futile efforts. This is not the first time OPEC has announced production cuts during the energy crisis that began in the summer of 2021 and escalated after Russia’s invasion of Ukraine and Western sanctions against Moscow.

It was preceded by an even larger reduction in OPEC in October last year, namely by 2 million barrels per day, which corresponds to 2% of world supplies. And all this within a short distance of Beijing’s decision to lift lockdowns and virtually all restrictive measures against the pandemic and try to restart the Chinese economy. A restart that is widely believed to lead to increased demand from the world’s second-largest energy-intensive economy.

Therefore, even before the OPEC announcement, market estimates, including Goldman Sachs, spoke of an increase in oil prices to $90–95 per barrel by the end of the year. After the OPEC announcement, Goldman Sachs raised its forecast to $100 a barrel, while Rystad, a research and analysis company, forecasts a summer price spike to around $110 a barrel. These ominous forecasts raise concerns primarily about the potential impact of oil prices on inflation as central banks around the world try to tame its runaway growth and households struggle to cope with precision.

Significantly, the news about OPEC’s decision to cut production was published in the Anglo-Saxon press with headlines like “OPEC makes it difficult for the Fed.” In short, interest has automatically shifted to how this will affect the position of central banks, which have recently been tempted to somewhat soften their aggressive turn towards restrictive monetary policy. And all assessments converge on the prediction that central banks will be forced to make new and possibly aggressive interest rate hikes.

Instant reaction

Reaction In the wake of the OPEC decision, the superpower’s National Security Council stressed in a statement that “cutting production now amid all this uncertainty in the market is unwise.”

1-1.5 million

barrels crude oil per day shortage in the world market is estimated in the second half.

Pavel Molkhanov

“It’s a kind of tax that is imposed on any country that imports oil,” said Pavel Molkhanov, investment manager for Raymond James, noting that “the US will not be hurt if oil reaches $100 a barrel, and countries that do not have domestic hydrocarbon production.

2 million

barrels per day was just before the cut in oil production announced in October.

Henning Glostein

Anticipating suffering mainly for the countries of Southeast Asia, but also for Turkey and some European countries, Eurasia Group Director Henning Glostein predicts that “those countries that have a high energy dependence on imported oil and cover their energy needs will be the most affected largely associated with fossil fuels.”