Last Sunday, the Organization of Petroleum Exporting Countries gathered to authorise their speculated $2 million barrels a day output cuts on oil; marking the steepest decrease in oil production since the beginning of the Covid-19 pandemic. It’s worth remembering that these cuts were only authorized on paper and the actual number is closer to 900,000 barrels per day, which is much less worrying. However, the saga continues to worsen with each day as OPEC’s decision has been firmly opposed by the US, which has spent quite some time lobbying against the proposal. US President Biden expressed his concern that the decision was engineered to favour Russian interests; in particular; lashing out at Saudi Arabia and threatening unspecified “consequences” for its betrayal. He went on to cite fears of a global recession, arguing that the cuts would affect low-income nations, but his motives were not purely altruistic.
OPEC’s decision is making headlines as a violation of America’s longstanding relationship with Saudi Arabia. The heated furore is adamant on connecting dots to Moscow; squandering any hopes of depriving Russia of oil revenues. Quite interestingly, a Saudi firm recently made a $500m investment in Russian oil companies, including Gazprom, and Kingdom has also doubled its imports of Russian oil to free up space for its own exports.
This is a derailment from the US’s recent policy of developing closer diplomatic ties with Saudi Arabia, especially considering the July visit where Mr Biden had hoped to convince Mohammad bin Salman to increase petrol production and mitigate the negative impact of his Russian economic embargo. His strategy of overlooking several diplomatic upheavals was contingent on the prospect that Saudi Arabia would concede to his demands for more oil. Now, Biden finds himself in a sticky situation: OPEC’s recent cuts on oil mean greater inflation and market instability at home, right before a crucial midterm election.
But Saudi Arabia’s insistence on the purely economic nature of its decision on top of the condemnation of Russia’s invasion of Ukraine has yet to soothe Biden’s fears. The Kingdom is right on the mark in its assertion as a powerful economic player in the global arena and trying to pander to a shared oil interest with Russia. It seems natural that they would want to cooperate with each other but at what cost? MBS must have deliberated on the implications of a Russian partnership on the ties with Washington. For now, the odds are playing in his favour. *