What did Opec+ just do?
The Organization of the Petroleum Exporting Countries – the cartel known as Opec+ – announced on Wednesday that it would slash oil production by two million barrels per day, beginning in November.
The supply reduction – the biggest since 2020 – from the alliance of 24 countries, led by Russia and Saudi Arabia, came as a shock to many energy market watchers and governments including the United States.
Opec+ sought to position the move as an effort to prevent a further slide in global oil prices which have fallen around 20 per cent since summer highs of $100 a barrel, according to forecasters Brent.
Others didn’t buy it, with the Biden administration characterising the move as Opec+ “aligning” with Russia amid its invasion of Ukraine and the shockwaves that the war has caused in energy and food markets, amplifying the risk of a global recession.
There are also concerns that the move could strengthen Vladimir Putin at a time when Ukrainian forces are on the advance and Russia is set to face new European sanctions on its oil.
Even as the impacts of the climate crisis worsen, and the transition to clean energy continues apace, the world still consumes around 100 million barrels of oil each day, so cutting this by 2m will have an impact although how much remains unclear.
What was Biden’s role?
During his Middle East visit in July, President Joe Biden had a highly controversial meeting with Saudi Crown Prince Mohammed bin Salman who he infamously gave a “fist bump”.
Human rights organisations strongly criticised the trip which came after US intelligence concluded that the prince ordered the killing of Saudi-born US resident and Washington Post journalist Jamal Khashoggi, who was murdered and dismembered with a bone saw inside the country’s consulate in Istanbul in 2018.
The meeting was seen as a reversal for Mr Biden who vowed to make Saudi Arabia a “pariah state” during the 2020 election season over its long record of human rights abuses. After the meeting, the president said that he raised Khashoggi’s murder with the prince, known as MBS.
But as The New York Times reported on Wednesday, that meeting with MBS, Saudi’s de facto leader, was “mostly to increase the supply of oil”.
Mr Biden addressed the Middle East trip when he spoke with reporters on the White House lawn on Thursday morning.
“The trip was not essentially about oil. The trip was about the Middle East and about Israel and rationalisation of positions but it is a disappointment,” he said.
Shortly after announcement, the US openly accused Opec+ of siding with Russia. “It’s clear that Opec+ is aligning with Russia with today’s announcement,” White House press secretary Karine Jean-Pierre said on Wednesday.
Fellow Democrats fumed over the decision with New Jersey Congressman Tom Malinowski telling Politico on the US-Saudi relationship: “We have to stop acting like the suckers in this relationship, and reestablish that the services we provide to these countries require them to take our legitimate interests and concerns into account. And if they’re not willing to do that, then they should find another friend.”
Mark Zandi, chief economist for financial markets experts Moody’s, told CNNthat he didn’t believe that Opec+ was “weaponising oil” but rather working in its own self-interest.
On Thursday, Mr Biden said the administration was looking at all alternatives but no concrete decisions had been made.
Among the options are easing sanctions against Venezuela to allow oil from the authoritarian regime into the US. Another strategy is to further tap the US Strategic Petroleum Reserve which is currently at its lowest level since the mid-1980s.
The downstream impacts of the Opec+ decision on gas prices is also unwelcome news for Democrats ahead of the November mid-term elections where the economy and rising cost of living have become central issues for voters.
What does it mean for you?
The Opec+ decision will likely increase gas prices, a major concern for American consumers who are already being squeezed financially by high inflation. Moody’s analyst, Mr Zandi, told CNN on Thursday that it could push gas prices back over $4 a gallon.
Patrick De Haan, an analyst with Gas Buddy, tweeted: “As a result of OPEC’s production cut, I estimate U.S. #gasprices will be impacted by roughly 15-30c/gal/”
Gas prices rose on Thursday to a national average of $3.867, according to auto club AAA, although some states like California are paying far above that amount at $6.420.
A gallon of gas hit a nationwide average high of $5 for the first time in June.
The slash in oil production also increased concerns that a global recession is on the cards. Kristalina Georgieva, managing director of the International Monetary Fund, said that the “risks of recession are rising” on Wednesday and called the current economic environment a “period of historic fragility”.
Is climate policy to blame?
Right-wing commentators swiftly rounded on efforts to tackle the climate crisis – largely caused by the planet-heating emissions from burning oil and gas.
Cutting emissions is critical to avoid even more devastating climate impacts like stronger hurricanes, and more severe drought and heatwaves. So the US, and dozens of other countries have heeded the advice of climate scientists and financial experts alike and begun shifting their economies away from reliance on oil and gas, and their global fluctuations, to homegrown renewable energy like solar and wind.
Yet following the OPEC+ announcement, internet provocateur and son of the former president, Donald Trump Jr, tweeted: “Hey #StandWithUkraine folks. You know how to really hurt Putin? Open up American energy again!!! It’s so obvious, but I guess that and the good paying jobs associated with it is a bridge too far for you morons.
“Hey, virtue signaling while doing noting [sic] is great too.”
The fossil fuel lobby also piled on. “The White House has one option left and it is the one option they should have never turned away from in the first place – the US-based oil and gas industry,” tweeted the US Oil and Gas Association.
In the short-term, the US produces more crude oil than it needs – but still relies on imports due to decades of broken government policies, according to Foreign Exchange expert Martin Tillier in Nasdaq.com.
There is growing understanding that true energy independence and escape from the global whiplash caused by Opec+ decisions and geopolitical events will come from rapid transition to a suite of clean energy sources including wind, solar, hydro, geothermal, battery storage, and controversially for some, nuclear.
The independent and influential International Energy Agency has continued to urge the transition to clean energy after Russia’s invasion of Ukraine.
“We can tackle both the global energy crisis & the climate crisis at the same time. A massive surge in investment to accelerate clean energy transitions is the only lasting solution,” said IEA executive director, Fatih Birol, on Wednesday.