President Joe Biden and the Democrats are plagued by four letters with only a few weeks until the November midterm elections: OPEC.
The Organization of Petroleum Exporting Countries (OPEC) and its allies, led by Saudi Arabia and Russia, announced last week that they would reduce oil production by 2 million barrels per day, the largest reduction since the start of the pandemic. This decision comes just weeks before the US midterm elections and has the potential to drive up gasoline prices.
The group’s first in-person meeting since March 2020 was followed by the announcement of the production reduction. The decrease amounts to around 2% of the world’s oil demand.
In a statement, the Biden administration blasted the choice, calling it “shortsighted” and stating that it would be detrimental to several nations who are currently suffering the most from high energy prices.
In November, the output reductions will begin. In December, OPEC+, which consists of OPEC nations and allies like Russia, will convene once more.
Now what?
We turned to Hossein Askari, a professor of international business at The George Washington University, for one viewpoint on the OPEC+ decision and to better comprehend how it affects everyone.
Below is a transcript of our phone discussion, which has been minimally modified for clarity and flow.
QUESTION: Can you explain the current OPEC decision to us? What exactly is happening?
I’m sorry to inform your audience that the United States was not well-prepared for what it would do when the war in Ukraine began. For this and that, Russia was subject to sanctions. Thus, the price of oil began to rise. Additionally, the US imposed sanctions on Russian oil, not gas, at the same time. Thus, the amount of Russian oil on the markets in the West decreased.
In fact, Russia began lowering its rates to China and India while exporting more oil to those nations. As a result, they would purchase Russian oil, but there was a lack of it.
If I may say so, America practically imposed sanctions like a crazed cowboy, which is another reason why the shortage had arisen. It has long imposed sanctions on Venezuela.
But Saudi Arabia’s new effective ruler, MBS, has developed a close relationship with Putin. And so, when President Biden visited him a few months ago and essentially urged him to enhance oil output, I think America really disgraced itself by doing so. I’m sorry to say this, but I have to insert this bit of politics.
Naturally, MBS did not reply favourably. But right now, he’s actually gone too far. He has agreed that they will cut back within OPEC, and he is, of course, the primary spokesperson in OPEC with Russia.
What does the OPEC decision imply for the typical American matter?
ASKARI: Based on where we are right now, I predict that the price of crude oil will increase by a maximum of $5 a barrel by the end of the year. Now, many individuals believe they will increase even farther. I disagree because I predict that the global economy would expand at a slower rate, that some Venezuelan oil will enter the market, and that agreements may be reached that would allow for the entry of additional Iranian oil.
If nothing else changes, I believe Americans can anticipate gasoline prices increasing by another 30 to 50 cents a gallon from where they are currently.
Home heating oil, which might potentially increase, is another issue that affects Americans. Therefore, the typical American will always spend more per gallon of gasoline at the pump. And I believe that their consumption of fuel oil to heat their homes will actually be more affected. Therefore, it will make things more difficult for the typical American. There is no way to avoid it.
QUESTION: What steps should the US take right away?
Considering how far we have gone to accommodate Saudi Arabia, I believe the United States should be much, much harder with them. And we ignored what they did while they were doing it. It’s time to be harsh right now. They have treated us harshly. I believe that the president of the United States need to deal Saudi Arabia harshly.
WHAT MATTERS: Is there anything else the US can do right now to assist with oil prices?
ASKARI: This administration unquestionably has a poor relationship with US energy and oil businesses. Since you really need the oil industry and the government to cooperate right now, I believe there should be greater covert cooperation between them.
I’m aware that many people oppose fracking, but perhaps it’s time to carry out some additional fracking. Maybe it’s time to boost production. They can boost production elsewhere as well. That, in my opinion, would be incredibly, incredibly useful.
And I believe that the US oil firms believe that the administration is essentially trying to force them out of business. Please note that I have no support for the oil industry.
WHAT MATTERS: Do you have anything further to say?
Some people believe that OPEC actions are solely economic. ASKARI: Some people just consider political issues. Both have always existed, particularly for Saudi Arabia.
The real decision-makers in OPEC are Saudi Arabia and the United Arab Emirates. Americans need to realise that it’s not the other members, Nigeria, or Iran. Americans, in my opinion, should be aware of who is and is not one of their pals.