In Vienna, ministers from the 13-nation Organization of the Petroleum Exporting Countries (OPEC) and a group of 10 exporters led by Russia agreed to reduce production by 2 million barrels a day from November. The move pushed up global oil prices, but the Kremlin says production reduction is intended to stabilise oil markets.
It is the biggest cut since the height of the Covid-19 pandemic in 2020 and comes despite concerns the decision could boost inflation and push central banks to hike interest rates further.
The deal is an indirect result of a increasingly tight relationship between Moscow and Riyadh, in which Saudi Arabia seems to be shifting from its traditional relationship with Washington.
Cracks in that relationship started to appear in 1973, when the West supported Israel in the Yom Kippur war, leading to an Arab oil embargo which severely impacted Western industries.
Saudi–US relations nosedived after it became clear that 19 of the 20 hijackers behind the September 11 terrorist attack were Saudis.
Current Crown Prince Mohammad Bin Salman is considered "permanently stained" after a US intelligence report concluded that the Saudi crown prince himself ordered the killing of journalist Jamal Kashoggi.
Meanwhile, Washington successfully decreased its dependence on Saudi oil after fracking techniques enabled the US to become the world's largest oil producer, ahead of Russia and Saudi Arabia for the first time in 2019.
From Riyadh with love
In March, Saudi Arabia voted for UN resolution ES-11/1 condemning Russia's invasion of Ukraine. But one month later, Riyadh abstained in a vote to suspend Russia from the UN Human Rights Council.
And in July, Russian President Vladimir Putin and the Saudi crown prince spoke by phone to discuss further cooperation between the two groups of oil producers.
The conversation took place six days after US President Joe Biden visited the prince in Saudi Arabia – highlighting the kingdom's importance to both Washington and Moscow at a time when Russia's war in Ukraine is roiling global energy markets.
According to a research note by the Carnegie Endowment for International Peace, Saudi Arabia and other Gulf states "effectively sided with the Kremlin, which enabled the Putin regime to refill its coffers and to limit the impact of US and EU sanctions".
The decision to cut oil production "testified to their undiminished desire for higher oil prices, a slower energy transition, and a dampening of the outlook for US shale production", according to the think tank.
In a reaction, the White House says that the US 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".
And former Democratic Presidential candidate Bernie Sanders tweeted that "OPEC's decision to cutback on production is a blatant attempt to increase gas prices at the pump that cannot stand. We must end OPEC's illegal price-fixing cartel, eliminate military assistance to Saudi Arabia, and move aggressively to renewable energy."
OPEC's decision to cutback on production is a blatant attempt to increase gas prices at the pump that cannot stand. We must end OPEC's illegal price-fixing cartel, eliminate military assistance to Saudi Arabia, and move aggressively to renewable energy.
— Bernie Sanders (@SenSanders) October 5, 2022
Levels before the war
Oil prices had slid in recent weeks back to the levels before the war in Ukraine on concerns of a global slowdown, but have surged in recent days on expectations of the production cut.
The main international crude contract, Brent, jumped two percent following the decision before finishing at $93.37 a barrel, up 1.7 percent.
"Oil futures are expected to continue their rally in the short and medium term, but continued concerns over a global recession and rising inflation are likely to limit the long-term upside," said Srijan Katyal of the international brokerage ADSS.
Swissquote analyst Ipek Ozkardeskaya warned that the big cut could "backfire" on OPEC+ if investors fear it will push inflation higher and force central banks to hike interest rates so much that it triggers a recession.
"The higher the energy prices, the sharper the central banks must kill demand to pull the prices lower," she said before the decision was announced.
(With AFP)
