"The global economy consumes about 100 million barrels per day, and when OPEC+ reduces by two million, which is equivalent to a reduction in production by 2%, this reduction is considered a sharp reduction, which will force oil prices to respond to the rise by a large percentage and in a very short period. Oil prices will rise more than the decrease in quantity, because oil is a necessary commodity and the demand curve is [inelastic]," explained Dr. Ahmed Al Ibrahim, a Riyadh-based political analyst.
Prior to OPEC+'s announcement, the Biden administration's senior energy, economic and foreign policy officials tried to persuade allied Middle Eastern states, including Kuwait, Saudi Arabia, and the United Arab Emirates, to vote against the move, according to CNN.
The media outlet quoted draft talking points circulated by the White House to the Treasury Department on October 3 which called the prospect of production cuts a "total disaster" and claimed that it could be taken as a "hostile act." CNN cited an unnamed US official as saying that the White House is "having a spasm and panicking." Meanwhile, Goldman Sachs raised their fourth-quarter 2022 Brent oil forecast by $10 to $110 per barrel.
"Oil is the most important source of energy," Al Ibrahim said. "If oil rises, production costs will rise. Therefore, the rise in oil prices was linked to inflation. The higher the oil prices, the higher the inflation rates. There is no commodity that oil does not enter into its production. If oil is not an essential component in the raw materials of that commodity, it is an essential component in the energy that moves the production line, and an essential component in the fuel of the transportation means that transports that commodity to the market."
Al Ibrahim expects a further decline in the euro, the pound sterling, and the lira, as well as many currencies of importing countries. He added that "most of the shares of international companies will decline due to the decrease in their profits, which will be negatively affected by the rise in production costs resulting from the rise in energy prices."
According to the Epoch Times, the cuts have dealt a heavy blow to President Joe Biden and the Democratic Party ahead of the November elections. Republicans have repeatedly chastised Biden for curbing the domestic crude production while championing the Democratic Party's "green agenda." US energy prices started to soar last year amid accelerating inflation. Eventually in October 2021, consumer prices went up, with inflation hitting a 31-year high. Presently, inflation remains at a 40-year high and is called a top concern among likely US voters ahead of the midterms.
"OPEC is taking advantage of President Biden’s reliance on foreign oil and slashing supply," tweeted Sen. John Kennedy (R-La.), adding that US drivers will now experience higher costs at the pump.
While the White House has repeatedly tried to pin the blame for rallying gasoline costs on Russia, US energy industry leaders cite Biden's "hostile" attitude to oil production and fossil fuels as a key reason behind the trend. New York billionaire and refiner John Catsimatidis told NTD News earlier this week that the US and Canada could jointly produce enough oil for their own needs and for export and expressed concerns about Biden's incapability of handling the situation.
"The decision came at the wrong time when Biden is seeking a mid-term election. This can damage his popularity, and the Biden administration will not like it," said Nafis Alam, professor of finance and head of the School of Business at Monash University in Malaysia.
Rules for Thee and Not for Me
Oil-producing economies won't be affected so dramatically as those of their oil-importing peers, noted Al Ibrahim. This fact prompted some observers to speculate that oil-producing countries had deliberately deepened a recession in oil-importing countries, the analyst remarked, adding that Democratic Representative Ro Khanna from California went even so far as to threaten Saudi Arabia with severing aviation part supplies and preventing Boeing and Raytheon from collaborating with Riyadh. For her part, White House spokesperson Karine Jean-Pierre claimed that OPEC+ "aligned" with Russia.
Yet, no one has held the US responsible for dragging the world's economy into recession by applying the Federal Reserve's policies, the analyst stressed, adding that Khanna's bellicose stance is most likely triggered by fear of losing the upcoming midterm elections.
"When America wanted to reduce inflation in its economy, it raised interest rates without paying attention to what is happening in the rest of the world," recalled Al Ibrahim. "America raised interest rates to curb inflation, but it raised the cost of financing investments, and withdrew dollars and capital from many countries that lack dollars. As if it exported the inflation that it had to countries with weak economies, and caused a global recession due to high interest rates. Did America think about anything other than its economy? Did America think about those countries?"
The UN has recently called upon the US Federal Reserve and other major western central banks to stop raising interest rates as the measure is bleeding the economies of developing countries dry.
"It is acceptable for America to search for its interests, and in the same breath it does not want others to search for their interests," Al Ibrahim said. "Has freedom and sovereignty become monopolized by America? German Economy Minister Robert Habeck accuses the United States of imposing astronomical prices for gas supplies. Why doesn't America consider the gas prices it offers to its ally Germany a hostile act?"
The analyst pointed out that the decision to reduce production was taken by the whole OPEC+ group, which consists of 23 countries, and not only Saudi Arabia. "It is the right of all OPEC Plus countries to preserve their interests," he highlighted.
"It shows that countries like Russia and Saudi - the key OPEC members - are not afraid of the Washington rules," said Alam. "It can be anticipated that the OPEC decision to cut production is a direct rebuttal to the US government, but OPEC has always taken decisions for their member countries' benefit and also to normalize the oil prices. Geopolitical tension between US and Russia should not be taken as an excuse for the oil supply decision."
Earlier, Saudi Arabian Energy Minister Prince Abdulaziz bin Salman shredded allegations from journalists that the cuts could be seen as "belligerent" at a press conference following the OPEC+ meeting. The Saudi official elaborated that the move was aimed at stabilizing the oil market.
"If the Gulf countries are in a period that takes into account the recovery of the global economy by increasing production and decreasing prices, the western countries impose taxes on oil and do not take into account the welfare of their people. Why should we bear the responsibility for the welfare of their people?" Al Ibrahim asked rhetorically.
"We have our economic plans and we have a vision of 2030 and a future to build for us and for future generations, and our economic decisions are in line with our interests, and we do not care whether any party in any country wins or loses," the Riyadh-based analyst concluded.