On Wednesday, October 5th, at the 33rd OPEC and non-OPEC ministerial meeting in Vienna, members announced their decision to reduce oil production “by 2 million barrels per day from the August 2022 required-production levels, starting November 2022, for OPEC and non-OPEC participating countries,” according to a statement released on OPEC’s website.
Representatives of Saudi Arabia justified the move as a response to rising interest rates in the West and a weaker global economy, as reported by Reuters. International reactions interpret OPEC’s decision as a sign of support to Russia since it will result in raising oil prices. The White House vehemently disapproved of the decision:
The president is disappointed by the shortsighted decision by OPEC+ to cut production quotas while the global economy is dealing with the continued negative impact of Putin’s invasion of Ukraine.
In a follow-up comment, White House press secretary Karine Jean-Pierre told reporters that it was obvious that OPEC+ was “aligning with Russia.”
The decision by OPEC+ is indeed a blowback on the Biden administration, as the U.S. president had visited Saudi Arabia as recently as July to promote an increase in production rather than a reduction. As a response, Biden announced the release of another 10 million barrels from the Strategic Petroleum Reserve in order to keep prices low. This comes on top of the already 200 million barrels Biden had previously released over the course of his presidency, an amount that exceeds more than all previous presidents combined, putting the national oil reserves at their lowest since 1984.
But rather than increase U.S. oil production, the White House continues to be committed to so-called renewables instead. According to the statement issued by the White House, “the U.S. is now poised to make the most significant investment ever in accelerating the clean energy transition while increasing energy security, by increasing our reliance on American-made and American-produced clean energy and energy technologies.”
Reactions from U.S. officials made it clear, however, that the perceived betrayal from OPEC+, especially from Saudi Arabia, will not be forgotten, as outlined in the White House statement: “In light of today’s action, the Biden Administration will also consult with Congress on additional tools and authorities to reduce OPEC’s control over energy prices.”
This offensive strategy was supported by Bill Farren-Price, a veteran OPEC watcher at the consultancy Enverus, who told the Financial Times that “Saudi Arabia has set OPEC on a collision course with the free world. They have sided with Russia in the name of protective oil market management,” adding that “there are bound to be political consequences for Riyadh.”
Saudi Arabia’s energy minister Prince Abdulaziz bin Salman, however, rejected the notion that the move by OPEC would hurt consumers and instead insisted that the decision was intended to encourage long-term investment in oil production. “Show me where the act of belligerence is,” the Financial Times quoted bin Salman. According to the Saudi Prince, energy markets need “guidance without which investment would not happen.”
Regardless of the Saudi prince’s reasoning, it is hard to deny that OPEC’s decision has a political component, with the midterm elections looming in the U.S. Faced with a variety of economical challenges already, the Biden administration has good reason to fear that increased costs at the gas pump may once again prove an obvious and effective part of the Republican campaign.
OPEC’s boldness has also been noticed in China, where the Global Times interpreted OPEC’s decision as a sign of “widening cracks between OPEC members and the U.S., as some past U.S. allies are no longer willing to cooperate with U.S. strategies.”
Meanwhile in Europe, rising oil prices may soon turn into the third horseman of the European energetic apocalypse. With former economic powerhouses like Germany already struggling to find and pay for enough gas to make it through the winter with the EU warning its citizens of potential blackouts this winter and petrol prices already at record highs, the news of a further increase in oil prices may be received with a mere shrug by those who have already given up hope of making ends meet in the current predicament.