October 6, 2022 - 3:30pm
OPEC+ announced on Wednesday that it would make production cuts of 2 million barrels per day, which is roughly equivalent to 2% of global supply. The decision is monumental. It shows that a new type of world is emerging in the wake of the war in Ukraine, and one that does not revolve around the West. As White House spokesperson Karin Jean-Pierre said this week: “It’s clear that Opec+ is aligning with Russia.”
The reality is that the decision to cut production is completely rational from the point-of-view of OPEC+. With interest rates rising quickly and growth slowing, Europe, which makes up around 19% of total oil consumption, is almost certainly facing down a serious recession next year. There is also a risk that the United States and Canada will fall into recession at the same time — these countries make up a further 27% of total consumption.
OPEC+ does not want to see history repeat itself. In the 2008 recession, European oil prices fell from just over $140 a barrel to just under $40 a barrel — a massive decline of over 71%. So, the likely reason that they are cutting production is to try to firm up the market in case there is economic turbulence ahead.
It is not OPEC+’s decision that is odd, then, so much as it is the American response. Jean-Pierre’s statement is somewhat understandable given that President Biden was aggressively lobbying the cartel to lower oil prices, presumably so he could have claimed to lower oil prices in the run-up to the midterms this November. Yet it still comes across as impotent, even pathetic.
Historically, American presidents have been able to lobby the Saudis to lower oil prices when it was so required. When Saudis flooded the market with oil in 2014, many were quick to point to the work of the White House behind the scenes. Certainly, the timing lined up in a way that suggested it. By the time the midterms rolled around that year on November 4th, the oil price had fallen around 28% from its peak in June.
What we are seeing emerge out of this week’s OPEC+ meeting is that the Saudis are no longer willing to play ball with the Americans. This is not surprising because Saudi Arabia is rumoured to be joining the BRICS alliance next year. The Saudis are rapidly moving away from the Western sphere of interest and are instead aligning with the emergent developing economies led by Russia and China.
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SubscribeThe United States strangles oil and gas production. Europeans refuse to frack and the Dutch close a large gas field just this week. Why wouldn’t these nations, whose economies suffered during the pandemic, take advantage and raise revenue to benefit their people?
It’s an intentional constriction of living standards.
This is inconvenient for consumers in the US and Canada, but not economically devastating for the simple reason that while America is a large consumer of natural gas and oil, it is also among the largest producers as well. I’m not enough of a student of economics to tell you whether the conventional wisdom that low energy prices benefit America as a whole is still true, but I can tell you America is better off than most of Europe and Asia in this regard. The author is correct about Biden’s appeal to OPEC being more political posturing than anything else, but I don’t think it signals a broad geopolitical realignment, more it signals the reality that most of the world doesn’t care about the US’s moral outrage over Ukraine and the US isn’t willing to give OPEC any significant incentives like they were decades ago because we outproduce most of the bloc anyway.
Except that the UK, EU, and Japan (at a minimum) are desperate to “de-dollarize” their energy imports. I suspect many others are as well, given the deficits they’d have to run to keep up the charade in the face of a strengthening dollar. This is a massive geopolitical realignment that signals the realization that energy is the world’s true reserve currency.
This topic would make a great unherd article, in my opinion, De-dollarizing energy.
I admit that I’m not well versed enough in economics to intelligently dispute your point so I’ll assume you have the right of it. I really only wanted to point out that the US is not as dependent on OPEC as they once were and a production cut means a lot less than it did decades ago. A longer article would indeed be well received as I would like to learn more about this issue. The dollar standard couldn’t last forever, and it will be interesting to see what happens in a post-dollar international economy.
All Biden or his people has to do is talk sternly at our govt or Scholz’s and they’d forget any silly ideas like dollarisation or thinking and ultimately acting independently.
The quicker our govts grew a pair and got clear of America the better for us.
Yes but – the Saudis as one of the world’s biggest oil producers only accepting USD for oil and broadly supporting America’s interests with their production is what’s underpinned the dollar’s global reserve currency status since the gold standard was ditched (1971?), to the US’s significant benefit.
Of course, reserve currencies are sticky things (a small % of global reserves is sill held in pounds after all, which is sweet of the other countries) and the cut in production will be vastly worse for us than the Americans this winter because we don’t make any of our own. Over the longer term though, it’s certainly not a good thing for the US-led international system.
Note that OPEC+ announced that it would make production QUOTA cuts of 2 million barrels per day, not production cuts of 2 million barrels per day! Also note that OPEC+ was already producing 3.5 million barrels per day less than their previous quota. This is just quota adjustment since many minor OPEC members cannot meet their quota of oil production.
Even the Arabs scorn the senile Chinese puppet. So sad.
So because OPEC have decided that demand for oil will likely drop in the short-medium term and reduced supply accordingly to hold prices steady (as they have always done), the writer uses it to shoehorn in another opinion piece about the demise of the west? We know he seems to think Putin is some kind of economic genius playing the long game, but most examples this writer provides to back up his theory seem tenuous at best
Not more “new world order” nonsense. The author even contradicts his own headline claim about a “new world order” in the first few sentences.
The explanation he actually offers in those sentences about OPEC+ acting in the self interest of the cartel to limit oil price drop if the West goes into recession is far more convincing. He seems to be confusing an economic decision with some imagined political agenda. Of course OPEC+ would act in the interests of OPEC+ – it’s a cartel. Just because it’s been a pretty incompetent cartel for a couple of decades, doesn’t make this any surprise.
And more convincing than the suggestion that a 2% cut in OPEC+ oil production is “massive” (remember that OPEC+ is not the whole world oil production, so that’s perhaps 1% in global output – assuming the US and others don’t change their output).
The US is self-sufficient in oil. If they then choose to pay an oil price determined by OPEC+ that’s their choice.
About the one and only joy of electrification, which would almost make it worthwhile, would be to see these odious, ignorant arrogant totalitarian states sink back into their penniless deserts, and see the end of their power for ever.
Whatever else may have motivated them, the governments of the OPEC + nations did this to give us the finger and strengthen Trump’s attempt at a comeback. They’re no longer afraid of us. We need to change that.
What with, European NATO? Sending there T 55 tanks to Ukraine since they’ve got no more junk to send them? Our foreign policy disasters over the last 25 years have got us into this mess. Unless you consider Yugoslavia, Iraq, Afghanistan, Libya, etc success stories.
If the EU and five eyes countries are such pushovers for America it doesn’t do much for our international reputation. In fact it makes the rest of the world detest us even more than they do America. Pitiful vassal statelets.
Let’s face it. The American Empire is on life support.
There will be no Methadone to ease the anguish of this clearly incompetent addict and its frightened citizens. It will take them some time to learn that less might sometimes be more. That authenticity and actual ideals really do matter. That there are problems both at home and around the world that must urgently be addressed for human benefit. Such problems are currently ignored by the majority of America’s self-absorbed citizens and their venal leadership. But these problems (climate, peace, fair dealing, resource extraction, human freedom, the spirit of equality) are much more existential than those iterated over and over again by a media which long ago surrendered its journalistic soul to the Pentagon and to a corrupted political establishment.
A multi polar world is inevitable. Its advent will not be a panacea. It will not bring an end to all the varieties of national or merely human misbehavior. But it will offer a respite–and no one knows how long it will be.
Turn out the lights. The party will soon be over.
After that, it will be time for many to celebrate. May the celebration last for however long it can.
We should be so lucky, but no, that’s wishful thinking. I can’t say I blame you for being tired of America being the global center of gravity. Most of us Americans are equally tired of it. We’re tired of taxpayer dollars supporting our bloated military and sending it to places most Americans can’t find on a map. We’re tired of militarily supporting all of Europe, and we’re tired of endless wars that don’t benefit American citizens in any way. Don’t confuse our hegemonic leaders for our people. They don’t represent America any more than Putin represents the average Russian or Xi Jinping the average Chinese citizen. Still, barring total collapse and civil war, America will still be a large nation with vast territories and abundant human and natural resources, so it is likely to remain a world power in some form. Europe, however, without NATO and the implied backing of the US military, will have to face the reality that they have no power or influence at all.
Completely agree with you (and as a European). USA is fine (no serious problems without known solutions – just a matter of willpower). Europe has serious problems.
All this “BRICS alliance” stuff is wishful thinking by a strange group of people who seem to imagine this might somehow be a good thing, whilst not recognising how improbably it it.
What do Russia, China, Iran and Saudi Arabia have in common other than a dislike (we might also call it jealousy) of the USA ? There have little common interest to form any stable alliance and huge and fundamental ideological conflicts.
Still, I’m sure Saudi will do just fine if it chooses to start sourcing its defence equipment from Russia instead of the UK and Europe !
I agree with all that except, Putin does speak for the vast majority of Russians.
Until they unite and have a USE. But Brexit
First world elitists are trying to use ‘global warming’ to force the entire world into energy poverty. The rest of the world isn’t buying it. Biden is old and weak – his progressive counterparts in Europe, Canada and New Zealand have been weak for a generation. Why should the Saudis give a crap what they want.
‘Global warming’ – out of interest, why the quotes? Isn’t the globe warming?
No, the Earth doesn’t just heat up like a big ol’ light-bulb. That’s a postmodern millennial myth.
No, unless one is a bone thick zombie eco sandaloid with what is left of its mind wired to the interweb…
A lot of smart people say it is. Some disagree. Nobody will know for sure until long after we’re all dead.
Always the pro-Putin undercurrent:
“with the emergent developing economies led by Russia and China. [RUSSIA – AN EMERGENT ECONOMY – NOW THAT’S A LAUGH. IT’S VULNERABLE TO SPLITTING UP. IF A FEW ASIAN FRINGE RUSSIAN REGIONS BROKE AWAY RIGHT NOW, PUTIN COULD DO VERY LITTLE ABOUT IT. SOME OF THEM ARE OPENLY DEFYING HIM AS IT IS, IN WAYS THEY WOULD NEVER HAVE DARED TO DO EVEN A COUPLE OF YEARS AGO]
This week’s OPEC+ meeting likely signals that future oil prices will be set in line with the needs of the BRICS+ countries, rather than with the needs of the West. Unless, that is, the West reconsiders its approach to diplomacy [OH THAT NAUGHTY WEST, BEING MEAN TO PUTIN] and how it conducts itself with these emerging economies …”
“Foot stomping by the White House”? Nah, this was beyond stupid by the Saudis. They should have waited until after the midterms and Biden would have swallowed it. But now they’re directly intervening in the midterm elections softy Biden will be forced to take serious action, supported by the house who are already submitting heavy duty bills.
This will result in more than “foot stomping” by the USA.