Saudi Arabia: US President Joe Biden on Wednesday warned of consequences against Saudi Arabia after the Riyadh-led OPEC+, a global cartel of oil-producing countries, announced plans to cut oil production.
Oil cartel OPEC+, which includes allies such as Russia, last week voted to cut oil output by 2m barrels a day to support prices, a move that has met with a strong backlash from President Joe Biden’s administration. The president’s spokesperson has accused the Saudis of siding with the Kremlin in a global energy war.
President Biden said this week he would ‘re-evaluate’ ties with the kingdom over its refusal to lower oil prices.
America considers that the decision to cut oil production by a Saudi-led cartel is designed to help oil exporters such as Russia.
Russia is facing isolation from the global fraternity for its decision to attack Ukraine. However, not all countries have agreed to toe the American or British line to not purchase oil from Russia. Besides, India immediately capitalized on the situation and took advantage of this opportunity to buy from Russia at discounted rates with beneficial terms and conditions.
The US has accused Saudi Arabia of “coercing” other OPEC members into production cuts, stoking the growing division between the two countries over oil supplies.
National Security Council spokesman John Kirby said: “Other OPEC nations communicated to us privately that they also disagreed with the Saudi decision, but felt coerced to support Saudi’s direction.”
Analysts say Riyadh and its Gulf Arab allies are likely to push back against any US punishment, a move which could benefit Washington’s rivals like Russia and China. It is widely claimed that the Saudis knew the production cut they sought would “increase Russian revenues and blunt the effectiveness of sanctions” against the intentions of those countries seeking to punish Russia for the war in Ukraine.
Russia and China are the likely beneficiaries of the expected Saudi-Arabian defiance against the US, following President Joe Biden’s decision this week to ‘re-evaluate’ ties with the kingdom over its refusal to lower oil prices ahead of the US mid-term polls, analysts claim.
The current acrimony means “China will certainly have a greater opening” in Saudi Arabia, said Kristin Diwan, a senior resident at the Arab Gulf States Institute in Washington. Besides, Russia will have greater control over OPEC+ functioning.
Saudi Arabia and its neighbours Kuwait and the United Arab Emirates – the only Organisation of Petroleum Exporting Countries (OPEC) members with any spare oil production capacity – have time and again snubbed US pressure to increase output to counterbalance the inflationary impacts of the Ukraine war.
Adopting neutrality, the Gulf states have upheld their OPEC+ agreement with Russia, and Riyadh reiterated on Tuesday that it’s backing to cut 2 million barrels per day in the OPEC+ production quota was driven by the aim of “achieving balance and stability in the global oil markets”.
U.S. Voters Support ‘NOPEC’ Bill
Lawmakers are calling on the Biden administration to put pressure on Saudi Arabia after the de facto leader of the OPEC+ and its allies slashed crude production by 2 million barrels per day for November, further straining global crude supplies to boost a weakened market.
Amid calls for retaliation against the cartel, a new Morning Consult/Politico survey, conducted in the US shows that just under half of the voters would support the No Oil Producing and Exporting Cartels Act, known as NOPEC, which would allow the Justice Department to sue OPEC+ members and companies under antitrust violations.
45% of Voters Support Bipartisan ‘NOPEC’
The real issue is far more different than it appears
To understand the real issue we have to dig in further. There is more to the current struggle between the oil-consuming west and the oil-producing nations than meets the eye and it runs far deeper than the war in Ukraine.
6th October – European Union (EU) agreed to impose a Russian oil price cap as part of a new package of sanctions against Moscow.
Immediately, 23 oil ministers from the OPEC+ group of oil-producing countries spoke out in favour of a sharp cut in their joint production quota.
Their collective decision to decrease output by about two million barrels of oil per day elicited strong reactions in the US in particular, and there was even talk of “declarations of war.” The EU felt duped, as the OPEC+ production cuts could drive up fuel prices and dampen their eight sanctions packages. Despite the narrative of the world edging toward a “post-oil era,” it seems there’s life in the old dog yet, as OPEC remains the talk of the town.
OPEC and ten non-OPEC energy producers – including Russia – have been coordinating their production policy since December 2016. At the time, analysts gave this “OPEC-plus” format. OPEC has weathered the storm of the global oil market in recent years, especially the excessive high-handedness of the US and EU, and has emerged as a key player.
As you may recall, the oil market between 1973 and 1985, when there was little consensus among OPEC’s members and many had already written the organization’s obituary – today, former rivals such as Saudi Arabia and Russia are managing to converge their interests into powerful cards.
In those days, it was normal practice for Riyadh to take into account and execute Washington’s interests within OPEC: A single phone call from the US capital was enough. When the US oil company ARAMCO – which acted like an extended arm of the US in the kingdom – was nationalized by Saudi Arabia in the early 1970s as part of the sweeping nationalization trends around the world, compensation was promised to the US on a mere handshake.
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The era of the ‘cartel of oil companies that divided up the oil market, has come to an end now. However, US policymakers – at least, psychologically – are still under the delusion – that era persists. “It’s our oil,” is an expression that still rattles in the power corridors of US policymakers. Those voices were particularly loud during the illegal US-led 2003 invasion of Iraq.
Financial market versus the energy market
To understand the core of the conflict in Ukraine – where a proxy war rages – one must break down the confrontation thus: The US and its European allies, who represent and back the global financial sector, are essentially engaged in a battle against the world’s energy sector.
In the past 22 years, we have seen how easy it is for governments to print paper currency. In just 2022, the US dollar has printed more paper money than in its combined history. Energy, on the other hand, cannot be printed. The commodity sector can outbid the financial industry. And therein lies the fundamental problem for Washington.
The US$ is fast losing its sheen and may no longer remain the primary exchange currency. India is dealing in Rupee-Ruble while importing oil from Moscow. Riyadh is warming up to the idea of trading oil in other currencies, as indicated this year in discussions with the Chinese to trade in yuan. The Saudis also continue to purchase from Russia, in Ruble like other West Asian and Global South states, they have opted to ignore western sanctions on Moscow, and are increasingly preparing for the new international condition of multipolarity.
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Washington, thus, no longer maintains its ability to exert absolute leverage on OPEC, which is now repositioning itself geopolitically as the enlarged OPEC+.
The threatening US actions are likely to backfire and even accelerate the geopolitical shifts taking place in West Asia, which has been edging out of the US orbit in recent years. Many Arab capitals have not forgotten the unseating of Egyptian President Hosni Mubarak in 2011, and how quickly the US abandoned its long-term ally.
Ever since the start of Ukraine’s military conflict in February 2022, we have essentially been watching the western-led financial industry waging its war against the eastern-dominated energy economy. The impetus will always be with the latter, because as stated above, in contrast to money, energy cannot be printed.
“Oil makes and breaks nations.” It is a quote that typifies the importance of oil in shaping global and regional orders.
The late former Saudi oil minister Zaki Yamani once described oil alliances as being stronger than Catholic marriages. If that is the case, then the old US-Saudi marriage is currently undergoing estrangement and Russia seems to have filed for divorce from Europe.
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