On 5th October, Earlier this month the member of the organization of the Petroleum Exporting Countries (OPEC) and their Russian-led allies agreed on a major cut in oil production due to a downward trend in the oil prices. This is the Biggest oil cut since the COVID-19 pandemic.
The 13-nation OPEC Cartel and its 10 Russian-led allies decided to reduce 2 million barrels per day from November at a meeting in Vienna.
Image Sources – The New York Times
US Take on the Issue
Recently the White House stated that this decision has only favored Russia and the US is going to reevaluate its ties with Saudi Arabia, the major oil-producing nation.
It says that this move of OPEC and its Allies to to reduce 2 million barrels is a mistake and short-sighted decision, It will hurt and harm the low-income economies, The world Consumes up to 100 million barrels per day so taking 2 million of the market would have a noticeable effect.
How will Russia benefit from this oil cut?
Many alleged that this OPEC decision would only favour Russia because as the production of oil goes down the prices would increase and the rise in the crude oil prices particularly benefit Russia which needs oil money for its expensive war in the Ukraine
The cut will tighten up the oil market and thus help Russia to secure better prices for crude oil.
Image Source – The New York Times
Targeted by numerous sanctions for invading Ukraine Russia has seen revenue from crude exports and the market where it can sell limited.
The prices were immediately impacted, with the global crude reference jumping about 8%.
The surprise reduction further consolidates the Russian-Saudi marriage of convenience by aligning their production levels and thus placing them on equal footing
However, Saudi Arabia and Russia said that all these are false allegations, and this OPEC decision was taken unanimously due to purely economic reason
What is OPEC
Image Source – Wall Street Journal
OPEC’s objective is to coordinate and unify petroleum policies among member countries to secure fair and stable prices for petroleum producers, Ensure efficient and regular supply of petroleum to the consumer nations and fair return on capital to those investing in industry
OPEC, The Organization of the Petroleum Exporting Countries was founded in Baghdad, Iraq in September 1960, The countries namely the Islamic Republic of Iran, Iraq, Kuwait, Saudi Arabia and Venezuela signed an agreement and became the Founding Members of the Organization.