OPEC Oil Production Cut Sets Relations with U.S. at Risk
After gathering for their first in-person meeting in Vienna since the start of the COVID-19 pandemic, a coalition of oil-producing nations led by Saudi Arabia and Russia, commonly referred to as the Organization of the Petroleum Exporting Countries (OPEC), announced on October 5 that they will cut oil production by 2 million barrels per day beginning in November, reports the Associated Press. Head of Americas Analysis at Rystad Energy Claudio Galimberti predicts that gas prices are to increase by roughly 10 percent in the United States, complicating the Biden administration’s strategy to achieve lower gas prices ahead of the 2022 midterm elections.
Before OPEC’s announcement, gas prices were already rising in several states with ongoing congressional races. The Washington Post reports that just this past week, prices jumped 62 cents in California and 40 cents in Nevada, Washington, Oregon, and Alaska. Falling gas prices over the summer improved the Democrats’ electoral prospects, but with the recent spike in gas prices, those gains have been undercut, and Republican polling numbers have vastly improved.
The cuts come despite aggressive lobbying on behalf of the Biden administration. In July, Biden met with the crown prince of Saudi Arabia, Mohammed bin Salman, despite his claim early in his presidency that he would not meet with the Saudi prince, reports BBC News. However, Biden left the meeting failing to secure any firm energy agreements, Reuters writes. White House officials have suggested that the Biden Administration has not done enough to dissuade the Gulf Arab countries from choosing to cut production.
Russia’s wealth largely relies on gas and oil sales. OPEC’s decision to lower the production of oil increases prices, which has led to claims that OPEC is helping fund Russia’s invasion of Ukraine, reports Al Jazeera. The increase in oil prices will likely lead to more revenue for the main oil sellers, most notably Russia, Saudi Arabia, and the UAE. Saudi Arabia’s resistance to the Biden administration’s efforts has left the White House contemplating a possible re-evaluation of ties with Saudi Arabia. The chair of the U.S. Senate Foreign Relations Committee, Bob Menendez, has called for the government to freeze arms sales to Saudi Arabia due to their perceived support for Russia and disdain for U.S. interests.
OPEC has defended its actions, claiming that they only intend to stabilize the oil market in light of a recent fall in global energy prices. They have reiterated a commitment to enhancing guidance for the oil market and not driving up prices as charged.
Energy Secretary Jennifer Granholm has previously suggested that the administration use emergency powers to curb exports as a way to boost domestic inventories. However, leaders of the American Petroleum Institute and American Fuel and Petrochemical Manufacturers have sent Granholm a five-page letter in response, warning that such restrictions would likely backfire and reduce inventory, discourage investment in increased production, and alienate U.S. allies during a time of war.
OPEC’s decision to slash production during the time of war in Ukraine has been seen by many countries, including the United States, as a threat to peace. Such cuts will negatively impact the people of the U.S. with anticipated increases in oil prices. Because of this, the U.S. will likely experience political turmoil, especially in many hotly contested states with ongoing congressional elections. The Biden Administration has warned of severe consequences for Saudi Arabia, which is still extremely reliant on the U.S. for military aid. OPEC’s decision to cut oil production will reverberate around the world and the Biden Administration will need to act fast to receive any concessions from the Gulf petrostates.
Image courtesy of The Kremlin, Moscow