The decision by OPEC+ to cut production by 2 million barrels last month triggered a trade of accusations and a verbal war between the US administration and OPEC’s de-facto leader, Saudi Arabia. While the US sees the decision as clear support for Russia in its war with Ukraine, Saudi Arabia and its allies insist that their decision was based on the dynamics of the market and was not politically motivated.
Whether it was politically motivated or not, the decision will not go without consequences on world politics and markets.
A Political Shift
During the 33rd OPEC and non-OPEC Ministerial Meeting, the 23-member alliance decided to reduce production by 2 million barrels per day. The cartel cited the uncertainty that surrounds the global economy and oil market outlooks as a reason for the decision. However, the cartel faced accusations that the move could increase crude oil prices and aid Russia in its war in Ukraine and hamper Western attempts to reduce its financing.
The White House said that US President Joe Biden was “disappointed” with what the White House described as a “shortsighted” decision to reduce production.
Biden’s statement went on to indicate that the decision will hit countries that are “already reeling” from high prices. It added that “the global economy was dealing with the continued negative impact” of Moscow’s attack on Ukraine.
Saudi Arabia rejected the US accusations saying that they are “not based on facts” and take the OPEC+ decision out of its “purely economic context.”
Saudi Foreign Ministry stressed in a statement that all 23 members of the OPEC+ group agreed unanimously to the decision and that the outcomes are based purely on economic considerations that take into account maintaining a balance of supply and demand in the oil markets, as well as limiting volatility.
The Saudi statement revealed the US request to postpone the decision to reduce production by a month was an attempt by the US government to avoid negative economic consequences that may affect the results of the mid-term congressional elections.
However, many observers have seen the move by the Gulf country as a deviation from their traditional stance as a US ally.
The Saudi statement didn’t offset the anger of the US officials, who vowed “consequences” after the oil production cut drove up pump prices just weeks before the midterm elections.
US lawmakers are threatening steps, including banning weapons sales to Saudi Arabia and unleashing the Justice Department to file a lawsuit against the country and other OPEC members for collusion.
On the other side, Saudi officials hinted at some vengeful responses, including dumping US debt – that could have huge ripple effects on financial markets and the real economy.
Saudi officials also hinted at the possibility of joining BRICS, an organization made up of a group of emerging economies, namely Brazil, Russia, India, China, and South Africa. Joining BRICS is seen as a sign of belonging to a world that is emerging beyond established Western dominance.
China and Russia have been pushing for the expansion of BRICS, soliciting support for the multipolar system of global governance instead of the unipolar system dominated by the United States.
Russian President Vladimir Putin reaffirmed Russia’s unshakable support to Saudi Arabia to join BRICS. Meanwhile, Chinese State Councilor and Foreign Minister Wang Yi asserted that China attaches great importance to the development of China-Saudi Arabia relations and puts Saudi Arabia in a priority position in China’s overall diplomacy and its diplomacy with the Middle East region in particular.
In Washington, President Joe Biden came under fire from two different parties, one of them accusing him of failing to punish Saudi Arabia for its behavior, while the other party warns that Biden’s policy could drive Saudi Arabia into the arms of Russia or China.
Following the OPEC’s decision, President Biden announced that he is authorizing the release of 15 million barrels from the Strategic Petroleum Reserve, a draw that completes the plan announced earlier this year to release a total of 180 million barrels.
Biden hopes the 15 million barrels could help keep gas prices at bay. However, many experts think the move can’t counter the effects of the OPEC cuts. Others warned that draining the US Strategic Reserves is a dangerous move that can fire back at any time soon.
Since the beginning of the Russian-Ukraine conflict, President Biden has tried to combat rising prices. His most effective move was the decision to begin the largest drawdown of the Strategic Petroleum Reserve in US history. The decision was aimed at combating oil prices that had surged past $100/bbl, and it was certainly a factor that helped reduce oil prices.
However, the OPEC decision came at a critical time as the US Strategic Reserves level was already 33% below the level of a year ago — and at the lowest level since 1984.
The sharpest warning came from Saudi energy Minister, Prince Abdulaziz bin Salman, who saw using emergency reserves by some countries as a market manipulation attempt.
“People are depleting their emergency stocks, had depleted it, used it as a mechanism to manipulate markets while its profound purpose was to mitigate the shortage of supply,” he said.
The Saudi Prince indicated that his “profound duty is to make it clear to the world that losing emergency stock may become painful in the months to come.”
Many of the Biden critics are worried about draining their reserves as winter is approaching while there are many threats to supply, not only from Russia, but also from unstable Iraq, Libya and the North Sea; which can be vulnerable to the European conflict with Russia.
They also wonder how Biden can fill the reserves again while adopting a green policy that promises to limit fossil fuel activities. Day by day, Biden becomes more worried about fuel prices and the prospects of losing more reserves.
His recent vent of anger was against Oil and Gas companies, accusing oil companies of “profiteering” from Russia’s invasion of Ukraine as he threatened them with legislation to impose a windfall tax unless they increased their output.
US petrol prices hit record levels of more than $5 a gallon this summer. They have since fallen but remain more than 60 percent higher than when Biden took office amid robust oil consumption and constraints on global supplies.
The coming days may witness more actions from Biden and more ripple effects on the market and global economic scene. It can also shake one of the deep-rooted political alliances.