The decision by Opec+ members to cut oil production by 2 million barrels a day has prompted fears of rising prices and an exacerbation of global tensions.
The announcement triggered an immediate jump in oil prices and threatens to bring higher costs for consumers in the West. It even forced President Biden to consider releasing further supply into the market from the US Strategic Petroleum Reserve.
“The world consumes up to 100 million barrels of oil a day, so taking 2 million off the market would have a noticeable effect,” said NPR.
The Week
Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.
SUBSCRIBE & SAVE
Sign up for The Week's Free Newsletters
Join more than 350,000 subscribers and keep yourself informed with a selection of The Week’s most interesting, enlightening and entertaining stories - plus daily puzzles.
Join more than 350,000 subscribers and keep yourself informed with a selection of The Week’s most interesting, enlightening and entertaining stories - plus daily puzzles.
Latest Videos FromThe Week
What is Opec+?
Opec+ is a cartel of 24 oil-exporting countries, which includes Saudi Arabia and Russia. The group was founded in 1960 “with the aim of fixing the worldwide supply of oil and its price”, said the BBC.
Opec itself is formed of 13 states, which vary in prominence from the major economies of the UAE and Saudi Arabia, to the smaller oil-rich states such as Gabon, Angola and the most recent to join, in 2018, Congo.
The cartel expanded in 2016, “when oil prices were particularly low”, and 11 non-Opec members were added to form Opec+.
The group’s headquarters is in Vienna, Austria, where it now meets every six months to discuss and fix global oil exports. Together, the cartel accounts for roughly 40% of the world’s crude oil exports, allowing it to strategically adjust the price by limiting or increasing supply.
Why is it cutting oil production?
The cartel is acting upon its mandate to monitor and control oil prices around the world. Having voiced its concern regarding the falling price of oil, the move to cut production is an “aggressive attempt to raise oil prices”, according to the Financial Times. It reported that Saudi Arabia wants “to ensure an oil price of about $100 a barrel”.
Despite reaching $140 a barrel in March, the price of crude fell to nearly $80 in September. Following this week’s announcement, the price per barrel immediately jumped by around 2%, to sit at $93.80.
What does it mean for the West?
The cartel’s “surprise deep oil production cuts” will “benefit Russia most”, according to Reuters, while at the same time “tightening supply to the West already suffering from record energy prices”. A reduced supply will “inevitably lead to soaring petrol and diesel prices”, said the Daily Mail, and will “further aggravate inflation”.
However, MarketWatch said the planned cut to output is “not a guarantee that prices will continue to climb”. The Guardian agreed, arguing: “It is possible that the production cut will not have a big impact on prices.” Due to Opec+ countries already producing below their quotas, “the actual cut could be closer to 900,000 barrels”, the paper said.
The decision has certainly “angered Washington”, wrote Felicia Schwartz in the Financial Times, particularly as the cut to production comes just months after “Biden made a controversial visit to Saudi Arabia over the summer in an effort to increase oil supplies”.
Biden has also “been trying to rein in prices at the gas pump ahead of the midterm elections”, added NPR.
What about for Russia and Ukraine?
Russia’s “economy is based on energy revenues, now critical to its war effort in Ukraine”, said NPR. The nation produces around 10 million barrels of oil a day – making it the third biggest producer in the world, behind the US and Saudi Arabia. But it has had to source buyers outside Europe – looking instead to China and India – since sanctions were imposed by the West.
DW reported that “US and EU sanctions on Russian energy have been one of the West’s main strategies for eating away at Moscow’s war chest.” However, as Reuters claimed, “Russia [is] indeed set to benefit most from the [Opec+] decision… Moscow won’t have to reduce a single barrel of output as it is already producing well below the agreed target while benefiting from higher oil price”.
Andrew S. Weiss, a Russia expert at the Carnegie Endowment for International Peace think-tank, summarised the consequences for Russia – and by extension, for the war in Ukraine – by confirming that Opec+ has “effectively sided with the Kremlin, which enable[s] the Putin regime to refill its coffers and to limit the impact of US and EU sanctions”.
