Belgium (Brussels Morning Newspaper) The world’s largest oil cartel agreed on a major cut in production at its meeting in Vienna on Wednesday, which will indirectly help Russia weather western sanctions and cope with the planned EU ban on Russian oil export.
The OPEC+ cartel gathers 23 of the world’s largest oil exporters, including most Gulf states and Russia, but excluding China, the US and most western democracies. At the Wednesday meeting in Vienna, the cartel’s members agreed on a significant cut in oil production, by about 2 million barrels per day, or around 2% of the world’s supply. The markets immediately responded by raising the price of oil to 93 dollars per barrel.
The cartel’s de facto leader, Saudi Arabia, justified the decision by claiming its goal was to “bring about stability”. Saudi Energy Minister Abdulaziz bin Salman told the media that OPEC+ plans to “remain ahead of the curve in the face of a period of diverse uncertainties”.
US President Joe Biden, who extensively lobbied for the organisation to keep its production at the current levels, expressed his disappointment by its “shortsighted” decision to reduce production.
Biden’s administration spent the better part of last three months lobbying against the production cut, with Biden himself making a personal trip to Ryadh, where he met with de facto ruler of Saudi Arabia, Crown Prince Mohammed bin Salman, in effect rescinding his persona non grata status in the west, earned after elements of his security apparatus assassinated Saudi dissident and Washington Post journalist Jamal Khashoggi at a Saudi consulate in Istanbul in 2018.
Biden’s economic diplomacy warned OPEC+ countries that a production cut would have a negative long-term effect on the global economy, with rising fuel prices likely to fuel already growing inflation figures, likely leading to a global recession.
Pressure on Biden
The decision also comes at an inopportune moment for Biden, who is facing a tough election challenge in the US midterm elections in November, where he could lose both the House and the Senate if rising prices at the petrol stations anger the voters ahead of the polls.
Biden had already started releasing oil from the country’s Strategic Petroleum Reserve to keep the prices in check, and has promised OPEC+ countries he would purchase their excess production to refill the reserve if they decide against the cuts.
Despite the announcement, actual production cuts are effectively likely to be less than the stated 2 million barrels per day, as the figure refers to the baseline production quantities, while OPEC+ countries fell short of their output targets by 3.6 million barrels per day last month.
According to Prince Abdulaziz, actual cuts will amount to some one million barrels per day, while analysts are putting the figure at anywhere between 0.4 to 0.9 million barrels per day.
The decision to cut production came a day after US treasury official Ben Harris announced G7 plans to introduce fresh sanctions targeting Russia’s oil production in three phases, with the first set of sanctions targeting Russian crude oil.
The EU has meanwhile agreed on a two-phase ban of Russian oil, with the ban on seaborne oil shipments set to start on 5 December, with the ban on oil products to take place on 5 February next year. The EU sanctions package will also aim to match the oil price cap on Russian oil that would be agreed on by the G7 countries