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Oil Production Cut... Between Rationality and Electoral Opportunism

Oil Production Cut... Between Rationality and Electoral Opportunism

Monday, 10 October, 2022 - 05:15
Salman Al-Dossary
Salman Al-Dossary is the former editor-in-chief of Asharq Al-Awsat newspaper.

It would be wrong to assume that the changes in oil prices are part of a politically-motivated Saudi-American confrontation. The last thing Riyadh is thinking about is using oil as a weapon to balance out the scene or harm one side or the other.


As Minister of State for Foreign Affairs Adel al-Jubeir told Fox News: “Oil is not a weapon. It's not a fighter plane. It's not a tank. You can't shoot it.”


Stabilizing prices is the goal of OPEC+ and the latest decision to cut production was taken unanimously by members. Saudi Arabia – as leader of this alliance – is a just a member of this group.


Here, we mustn’t forget that the United States is the world’s greatest producer of oil! The developments in the oil market are nothing new, but scenarios that have been repeated several times in the past.


The developments are – just like free markets – subject to supply and demand that is, in turn, affected by surrounding and geopolitical factors.


The only change this time around is that the Americans have decided to read the production cut from a political angle, rather than as an administration and political leadership that has witnessed several similar events over the years.


What many people are unaware of or seemingly deliberately neglecting is the impact the Russia-Ukraine crisis has on prices. The same can be said of fluctuations in the gas and coal markets and the rise in their prices that is impacting the price of electricity in Europe and Japan and other countries.


Added to the above – and this is very important – is the impact the slowdown of the economy has on prices. The US and Europe’s push to impose sanctions on Russia is another element that must be taken into consideration and that has slipped the minds of people who have made superficial statements for electoral gains.


Everyone chooses to attack Saudi Arabia given its clout and importance in regional and international decision-making.


As an observer, I have always admired OPEC+’s ability to take preemptive decisions. The group is active and quick to respond to changes. It is ready to confront any market fluctuations.


I believe the current developments in the market prompted the members to opt for a cut to achieve a balance in the market and guide its future decisions.


Stakeholders, those working in the oil industry, economists and legal figures know very well that the drafting of the OPEC+ agreement was based on an accurate and constant monitoring of supply and demand in the market. It was based on collective work aimed at achieving balance.


This means that the decisions of the members are based on responding to current factors, not political or economic agendas as some presume.


That is why, and for other reasons as well, no member of the group – regardless of their desire or political weight - can veer off the agreement. Not Saudi Arabia, Russia, the United Arab Emirates or others. Everything has to pass through the group and achieve the interests of the members, which will reflect positively on the global economy.


Western politicians always speak of oil prices and their desire to lower them. They adopt populist slogans with the purpose of achieving electoral and other gains. Of course, they certainly do not tell you about the other essential elements to balance the prices, such as the importance of investments in the industry that the US and others are trying to obstruct.


I had previously addressed this issue in a previous article, “Why Is Oil Always at the Forefront of Confrontation?!” OPEC+ had previously warned of the dangerous impact the drop in investments would have on the ability of supply in handling the growing demand in the market.


America, for example, has suffered from a shortage in refining for 20 years, but it has not built a refinery in decades!


Much more important than all the above is that Saudi Arabia and the US enjoy deep historic relations that go back long decades. The ties cover politics, defense, the economy, investment, energy and many other domains.


Riyadh’s ties with Washington cannot be restricted to oil prices. They cannot be controlled by a group of exporters. The relationship goes beyond partisan interests or fleeting electoral slogans.


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