OPEC agrees to major oil production cut, sparking US-Saudi rift
The Organization of the Petroleum Exporting Countries (OPEC) agreed last Wednesday to cut its members’ oil production by 2 million barrels a day. The decision is considered one of the most important by the oil cartel in recent history.
The oil cut is widely seen as a slap in the face to the United States and the Biden administration. It comes just two months after President Joe Biden traveled to visit Mohammed bin Salman, the crown prince of Saudi Arabia’s theocratic dictatorship. The FinancialTimes described the move as a “break in the alliance” between Saudi Arabia and the United States.
The Biden administration has been somewhat restrained in its public response to the announcement. President Biden said he was “disappointed”.
But his administration also released a statement accusing OPEC of “aligning with Russia.” Russia is a member of the larger OPEC group known as OPEC Plus. Russian Deputy Prime Minister Alexander Novak attended the meeting in Vienna.
Although the production cut was announced at 2 million barrels per day, the actual cut is expected to be closer to 1 million. The world produces about 100 million barrels of oil (mb/d) every day. Already, most OPEC members are struggling to meet their expected quotas, which is why the projected impact of last week’s announcement is less than the nominal cut. Nevertheless, removing 1% of global oil from the market over the next few months will have a significant impact.
First, the reductions mean that energy prices will stay higher for longer. OPEC members cited the risk of a global recession as justification for their cut. Anticipating that the US-led hike in global interest rates will trigger a full recession by the end of next year, OPEC wants to signal to markets that it will take steps to keep oil low. close to its current general price range.
Oil is the foundation of the modern economy, used in the production and distribution of virtually every product on the planet. The cuts will encourage not only high oil prices, but high prices in general. There is a significant risk that as global central banks drag the global economy into a recession, the slowdown will be combined with high energy prices. The combination of mass unemployment and high prices is a recipe not only for misery, but also for a social explosion.
Such concerns prompted US Treasury Secretary Janet Yellen’s comment that the cuts were “unnecessary and reckless”. Yellen had in mind the effect that energy prices would have on the class struggle, especially in developing countries. She told the FinancialTimes“We are very concerned about developing countries and the problems they face.”
There is no shortage of hypocrisy in Yellen’s comments. It leads to a rise in interest rates which generates not only mass unemployment, but also a surge in the dollar. A high dollar reduces the ability of developing countries to repay their debts, often denominated in US dollars.
The American ruling class is content to take destructive economic measures that it sees as benefiting its interests, but is furious that OPEC countries are asserting their interests.
“It’s hard to overstate how anxious the Biden administration is about a possible resurgence in oil prices,” said Bob McNally, a prominent oil energy analyst.
Alarmed by the resurgence of labor struggles across the country and the looming midterm elections, the Biden administration is terrified that even with a recession, prices won’t come down.
At the OPEC press conference in Vienna, the UAE’s energy minister said the cuts were aimed at avoiding a plunge in oil prices that would contribute to ongoing difficulties in raising funds for new projects oil and gas. Since 2014, new oil and gas investments have been significantly reduced.
OPEC members are also said to be annoyed by the recently implemented price cap on Russian oil. They fear that measures that so far have only been used against Russia could, in the future, be deployed against other countries, pitting Western control of the financial system against rent-seeking states based on the resources.
Within the ruling establishment in the United States, calls to punish Saudi Arabia are growing. “There must be consequences to this. Whether it’s lifting cartel immunity or rethinking our troop presence there,” Democratic Senator Chris Murphy told CNN.
Murphy continued: “For years we turned a blind eye as Saudi Arabia slaughtered journalists, engaged in massive political repression, for one reason: we wanted to know that when the chips were down, when there was a global crisis, that the Saudis would choose us instead of Russia. Well, they didn’t. They chose Russia.
Thus, Murphy acknowledged that the Democratic Party can ignore Saudi Arabia murdering journalists and executing its citizens…as long as its leaders toe the line against regimes targeted for destruction by US imperialism.
The hostility they are expressing today is not a reaction to the greed of Saudi despots and other members of the oil cartel. Rather, it is the expression of their divergent objective interests as the crisis of capitalism intensifies.
Amid the resurgence of class struggle, the descent into (US-led) war and the looming threat of a global recession, cracks are emerging in the network of alliances overseen by imperialism. American. As the historic crisis of the capitalist system intensifies, small countries with their own growing problems but with a certain clout, such as OPEC members, are more willing to assert their interests, courting the wrath of Washington and Wall Street.