Umair Jalali comments on a highly unlikely decision
It was quite unpredictable when it came but it did. The decision of OPEC+ to cut oil Supply production has disappointed the Western alliance led by the US which suspects Saudi double play in collaborating with Russia. It was quite obvious that the American reaction would be unequivocal as the decision to cut oil production by 2 million barrels would imply reducing 2 percent of global output in November which would further hit the recession-prone western economies. The decision by the 22-member OPEC+ cartel that includes Saudi Arabia, Russia, and Iraq reveals the extent of problems existing between America and Saudi Arabia despite the apparent ironing out efforts made by Joe Biden during his recent visit to Jeddah. Many senior US government functionaries term this reduction as a hostile act indicating how seriously the Biden administration views this action.
The Russian-Ukrainian war has made the global energy situation very vulnerable and has seen its prices skyrocket and the only way these could have been brought down was once the Saudis had increased oil Supply production. The price reduction in fuel prices is particularly crucial for almost all states as it affects the people directly specifically for the Biden administration that will contest mid-term elections in early November. Many policymakers in the western world would strongly feel that the Saudi decision to reduce the supply would be tantamount to tacit support for Russia by Saudi Arabia and the other Gulf states. Moreover, this decision by OPEC+ may negate the impact of the embargo on Russian oil that was agreed upon by the European Union in early June.
Russian Budgets
The embargo is supposed to cut Russian budgets and thereby exhaust the country’s war funding. However, the OPEC+ decision will see oil prices go up again, which means that Russia is going to make more money from selling its oil, even if it cannot sell as much. This line has Russia on one side and Ukraine and its Western supporters on the other. Saudi Arabia and its Gulf neighbors have already been slow in supporting European and US measures taken against Russia. It is implied that this decision is going to benefit the Russians in terms of generating more revenue and profits from selling their oil but it will also not slow down the Russian war effort against Ukraine.
Meanwhile, Saudi Arabia has said that the OPEC+ decision is purely about economics, not politics. They have clarified that oil is not a weapon that Saudis view as a commodity and that they have a huge stake in it. By taking this line the Saudis are clearly showing that they will pursue their own economic interests in order to achieve many of the country’s current ambitious plans as well as to maintain political stability as Riyadh is dependent on its oil income and its national budget is helped by higher oil prices. In this context, it is pointed out that the relationship between Saudi Arabia and its longtime ally, the US, has not been ideal for some time now anyway. Saudi Arabia openly complained that America did not do enough when its oil facilities were attacked by Houthis, the Iranian proxies, out of Yemen and that they were left alone.
Biden Administration
America and Saudi Arabia also differ when it comes to how best to prevent Iran, Saudi Arabia’s traditional foe in the region, from acquiring nuclear weapons. Saudis are apprehensive that under the Biden administration a new version of the Iran deal may not be enough to prevent Iran from acquiring nuclear weapons and Iran will remain a real danger for it and the entire Gulf region. The Saudis are aware that their influence is not potent enough to prevent America from going ahead with the amended version of the Iran deal. This is a real problem between Iran and the Western world that is unlikely to be amicably resolved.
Saudis need money to continue carrying on with their operations in Yemen western support is not available in this venture. Additionally, Saudi Arabia is the de-facto leader of the Gulf monarchies and like-minded countries of the Middle East and feels obliged to extend military support whenever the need arises. This aspect makes it important for the Saudis to take as much advantage of the oil price increase as possible though this advantage may not be construed as collaborating with Russia.
The fluctuation in oil supply will continue for some time as its solution does not lie with Saudi Arabia because its key player is Russia and unless some solution is arrived at in this respect then blaming Saudis would be futile. The problem would be for the rest of the world, particularly for the developing world, which is already badly battered by unprecedented inflation and life has become simply unbearable for their common people. The Weekender
Fluctuating oil supply
ByUmair Jalali
Teaches in The Royal Colosseum and is an avid sports fan
Dated
October 15, 2022
Umair Jalali comments on a highly unlikely decision
It was quite unpredictable when it came but it did. The decision of OPEC+ to cut oil Supply production has disappointed the Western alliance led by the US which suspects Saudi double play in collaborating with Russia. It was quite obvious that the American reaction would be unequivocal as the decision to cut oil production by 2 million barrels would imply reducing 2 percent of global output in November which would further hit the recession-prone western economies. The decision by the 22-member OPEC+ cartel that includes Saudi Arabia, Russia, and Iraq reveals the extent of problems existing between America and Saudi Arabia despite the apparent ironing out efforts made by Joe Biden during his recent visit to Jeddah. Many senior US government functionaries term this reduction as a hostile act indicating how seriously the Biden administration views this action.
The Russian-Ukrainian war has made the global energy situation very vulnerable and has seen its prices skyrocket and the only way these could have been brought down was once the Saudis had increased oil Supply production. The price reduction in fuel prices is particularly crucial for almost all states as it affects the people directly specifically for the Biden administration that will contest mid-term elections in early November. Many policymakers in the western world would strongly feel that the Saudi decision to reduce the supply would be tantamount to tacit support for Russia by Saudi Arabia and the other Gulf states. Moreover, this decision by OPEC+ may negate the impact of the embargo on Russian oil that was agreed upon by the European Union in early June.
Russian Budgets
The embargo is supposed to cut Russian budgets and thereby exhaust the country’s war funding. However, the OPEC+ decision will see oil prices go up again, which means that Russia is going to make more money from selling its oil, even if it cannot sell as much. This line has Russia on one side and Ukraine and its Western supporters on the other. Saudi Arabia and its Gulf neighbors have already been slow in supporting European and US measures taken against Russia. It is implied that this decision is going to benefit the Russians in terms of generating more revenue and profits from selling their oil but it will also not slow down the Russian war effort against Ukraine.
Meanwhile, Saudi Arabia has said that the OPEC+ decision is purely about economics, not politics. They have clarified that oil is not a weapon that Saudis view as a commodity and that they have a huge stake in it. By taking this line the Saudis are clearly showing that they will pursue their own economic interests in order to achieve many of the country’s current ambitious plans as well as to maintain political stability as Riyadh is dependent on its oil income and its national budget is helped by higher oil prices. In this context, it is pointed out that the relationship between Saudi Arabia and its longtime ally, the US, has not been ideal for some time now anyway. Saudi Arabia openly complained that America did not do enough when its oil facilities were attacked by Houthis, the Iranian proxies, out of Yemen and that they were left alone.
Biden Administration
America and Saudi Arabia also differ when it comes to how best to prevent Iran, Saudi Arabia’s traditional foe in the region, from acquiring nuclear weapons. Saudis are apprehensive that under the Biden administration a new version of the Iran deal may not be enough to prevent Iran from acquiring nuclear weapons and Iran will remain a real danger for it and the entire Gulf region. The Saudis are aware that their influence is not potent enough to prevent America from going ahead with the amended version of the Iran deal. This is a real problem between Iran and the Western world that is unlikely to be amicably resolved.
Saudis need money to continue carrying on with their operations in Yemen western support is not available in this venture. Additionally, Saudi Arabia is the de-facto leader of the Gulf monarchies and like-minded countries of the Middle East and feels obliged to extend military support whenever the need arises. This aspect makes it important for the Saudis to take as much advantage of the oil price increase as possible though this advantage may not be construed as collaborating with Russia.
The fluctuation in oil supply will continue for some time as its solution does not lie with Saudi Arabia because its key player is Russia and unless some solution is arrived at in this respect then blaming Saudis would be futile. The problem would be for the rest of the world, particularly for the developing world, which is already badly battered by unprecedented inflation and life has become simply unbearable for their common people. The Weekender
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