https://www.newsweek.com-By Tom O’Connor
Russian President Vladimir Putin (L) meets with Saudi Arabia’s Crown Prince Mohammed bin Salman in Riyadh, Saudi Arabia, on October 14, 2019. While Saudi Arabia has condemned Russia’s war in Ukraine, Riyadh and Moscow have continued to find avenues for cooperation, even after U.S. President Joe Biden made his first visit to the kingdom in July following harsh criticism of Crown Prince Mohammed bin Salman. ALEXEY NIKOLSKY/SPUTNIK/AFP/Getty Images
The decision made by Russia, Saudi Arabia and other nations that make up the world’s oil cartel and its partners to significantly slash production will likely produce effects felt across the globe the globe — including in the U.S., where President Joe Biden has appealed to Riyadh and other oil-rich Arab states for greater output while at the same time maintaining economic pressure on Moscow over its war in Ukraine.
As the expanded format of the Organization of the Petroleum Exporting Countries (OPEC+) opted Wednesday to cut current baseline production by about 2 million barrels per day (BPD), an effective drop of around 1 million BPD, the limits of the Biden administration’s pressure tactics were on full display.
Reacting to the news, White House Press Secretary Karine Jean-Pierre told reporters aboard Air Force One on Wednesday, “It’s clear that OPEC+ is aligning with Russia with today’s announcement.”
And in a joint statement, White House national security adviser Jake Sullivan and National Economic Council Director Brian Deese said Biden “is disappointed by the shortsighted decision by OPEC+ to cut production quotas while the global economy is dealing with the continued negative impact of [Russian President] Putin’s invasion of Ukraine.”
“At a time when maintaining a global supply of energy is of paramount importance,” the statement added, “this decision will have the most negative impact on lower- and middle-income countries that are already reeling from elevated energy prices.”
U.S. consumers could feel the pain as well in the form of higher fuel prices, as they did earlier this year. The White House has been fighting for months to bring those prices down, and Sullivan and Deese said Biden would order the Department of Energy to release another 10 million barrels of oil from the Strategic Petroleum Reserve next month.
Their statement said that Biden would continue to release barrels from the national reserve “as appropriate,” while calling on energy companies “to keep bringing pump prices down” and consulting with members of Congress for further measures.
As to why a last-ditch effort by the U.S. to sway OPEC+ away from its anticipated reduction failed, Abhi Rajendran, an adjunct scholar at Columbia University’s Center on Global Energy Policy who also serves as director of oil market research for Energy Intel, told Newsweek that “the alignment within Opec+ is strong, politically and with regard to oil.”
“The U.S. was never going to crack that,” he added.
In addition to Saudi Arabia, other OPEC members include Algeria, Angola, the Republic of Congo, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, United Arab Emirates and Venezuela. Joining Russia as part of the expanded group are Azerbaijan, Bahrain, Brunei, Kazakhstan, Malaysia, Mexico, Oman, Philippines, Sudan and South Sudan.
In a statement shared with Newsweek, OPEC said Wednesday’s decision was made “in light of the uncertainty that surrounds the global economic and oil market outlooks, and the need to enhance the long-term guidance for the oil market, and in line with the successful approach of being proactive, and pre-emptive.”
For Moscow, the benefits of the new arrangement were clear, especially as the Kremlin saw the European Union and G7 planning a potential price cap on Russian maritime oil imports. The measure was proposed last week by the European Council in the wake of internationally unrecognized referendums that took place under Russian and allied separatist administration in four Ukrainian regions, producing near-unanimous votes for their annexation into the Russian Federation amid the ongoing conflict.
“Russia prefers higher oil prices and wants to cut supply in response to the price cap plan,” Rajendran said. “This is a step to achieving both of those.”
Speaking to reporters after OPEC+ announced its plan, Russian Deputy Prime Minister Alexander Novak, who attended the gathering, said Moscow was “against such nonmarket instruments” as price caps, as cited by the state-run TASS Russian News Agency.
“Such precedents are very harmful for the energy market,” he added. “This leads only to a deficit, to a price hike; consumers will pay for that, if they want to introduce such a mechanism.”
He warned that “it is not feasible for us to support deliveries if such a tool is introduced to consumers that will use the price cap” and that Russia “will supply oil only to those supporting market-based pricing mechanisms.”
As for Riyadh, Saudi Arabia has increasingly sought to pull its own weight in global affairs, especially on energy politics, a realm it dominates as the world’s top oil exporter and de facto leader of OPEC. Biden, who has been an outspoken critic of Crown Prince Mohammed bin Salman’s human rights record, visited the kingdom for the first time as president in July in an attempt to smooth over frictions in their partnership, but the visit appeared to produce little success in alleviating pressure on the oil market.
Wednesday’s decision serves to drive that point home.
Responding to a CNBC reporter’s question as to whether the latest move constituted hostility toward those such as the U.S. warning against higher energy prices, Saudi Energy Minister Prince Abdulaziz bin Salman, son of King Salman and half-brother of Crown Prince Mohammed, said, “show me where is the act of belligerence?”
Prince Abdulaziz also refused to take a question from Reuters, citing what he said was “wrong” coverage insinuating that Riyadh and Moscow were collaborating to set oil price targets of around $100 per barrel.
Argus Media oil and gas analyst Nader Itayim, who is in Vienna to attend the OPEC+ proceedings, analyzed why the organization and its representatives are attempting to distance themselves from any narratives that geopolitics played a role in their decisions.
“Opec, and now Opec+, prides itself on being a technical organization that leaves politics at the door, so to speak,” Itayim told Newsweek. “That’s the only way an organization with so many members, some of which clearly don’t see eye to eye in the political sphere, functions and reached consensus on policy moves. So it wouldn’t ever frame this, or any other decision it takes, politically.”
Itayim said that OPEC+ “took its decision to cut targets by 2 milion BPD to be proactive and essentially get ahead of issues that are right around the corner: slowing global demand for oil and fears around a recession.”
“Although balances are tight,” he added, “it does not see a shortage of supply in the market at the moment, and even less so early next year as this demand weakness kicks in.”
“OPEC+ wants to be ‘ahead of the curve,'” he added.
The approach runs contrary to the Biden administration’s demands for more oil global production, especially as a lack of refining capacity has played heavily into the stark rise in fuel prices for the U.S.
“As far as the US argument goes — to produce more to help prices at the pump come down — Saudi Arabia and Opec+ don’t subscribe to this,” Itayim said. “For one thing, they look at oil prices today, and comparing Brent or WTI at the end of September, say, versus at the start of the year, prices are only 6-8% up. Prices at the pump are due not to a lack of oil supply, but a lack of refining capacity.”
“And if you compare the price of crude oil over this period versus that of other energies, it’s night and day,” he added. “The increase in the price of gas, LNG, coal over that period is 60%-70%, maybe more.”
The move has nonetheless been met with outrage in Washington, especially among Democrats, including Senator Chris Murphy of Massachusetts, who called for a reevaluation of the U.S. foreign policy toward Saudi Arabia in an interview Tuesday with CNBC ahead of the anticipated OPEC+ cut.
He reacted to Wednesday’s decision on social media by doubling down on his position.
“I thought the whole point of selling arms to the Gulf States despite their human rights abuses, nonsensical Yemen War, working against US interests in Libya, Sudan etc, was that when an international crisis came, the Gulf could choose America over Russia/China,” Murphy tweeted.
Representative Ro Khanna of California also had choice words regarding the longstanding partnership between Washington and Riyadh in an interview with The Washington Post on Wednesday.
“President Biden should make it clear that we will stop supplying the Saudis with weapons and air parts if they fleece the American people and strengthen Putin by making drastic production cuts,” Khanna said.
“They need us far more than we need them,” he added.
This is a developing news story. More information will be added as it becomes available.
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