/ world today news/ Oil prices are again in the focus of world politics. The development trajectory of the economies of both the countries of the global West and the countries of the East largely depends on them. Right now, the nature of the confrontation to control the pricing of the oil market is undergoing another breakdown. The fight is between OPEC+ and oil consumers led by the US.
The United States has effectively controlled oil prices in recent decades, taking advantage of its unique position as both the largest consumer and producer of hydrocarbons. This advantage was created by the shale revolution of 2000, which now appears to have exhausted its growth potential. But both the exhaustion of the growth potential of US oil production and the gradual return of OPEC to the status of a key mega-regulator of the world oil market are long-term processes. And the processes related to the energy transition and the West’s bet on green energy will also be stretched over many years with an uncertain end result.
But the sharp escalation of the geopolitical confrontation has given rise to a game in which the oil price factor occupies an important place. With the imposition of sanctions on Russia, Western countries have started a painful process of segmenting the oil market. Other players are entering the Russian-dominated European markets – at great cost to end users. The Russian Federation, also not without additional costs, is diverting increasingly large volumes of hydrocarbons to China, India, Turkey and other countries of Greater Asia.
This segmented market is subject to unpredictable price fluctuations. How quickly will China recover and how quickly and how deeply will Europe, the US and the UK fall into recession? Will one offset the other, will these events occur at the same time or at different times, further unbalancing the market? The risks for oil-producing countries, accustomed to projecting returns on huge investments in the development of the industry, have become unusually high. In view of this, the position of OPEC – above all of Saudi Arabia – has changed.
So far, the Saudis and their key partners (UAE, Kuwait) have tried to maximize their market share by keeping prices moderate. Now the cost of the resource has become more important. The fight for markets in the conditions of a sanctions war, attacks on strategic infrastructure (“North Streams”) and escalation of military tensions in different parts of the world has lost its relevance. It is the change in strategy that may explain OPEC+’s successive decisions to cut production. The latest such decision to further cut production by more than 1.5 million barrels per day since May has allowed oil prices to successfully climb above $80 a barrel.
Current prices suit Saudi Arabia, whose budget is based on an oil price of $80 per barrel. These prices suit Russia, whose budget is geared towards an average annual oil price of $70 per barrel. However, these prices do not sit well with the US, for which low energy prices are one of the key options to fight inflation, as well as to carry out foreign policy tasks to put pressure on Russia, whose budget is sensitive to fluctuations in oil.
The collective West encourages oil-producing countries in its circle of influence, as well as non-OPEC+ countries, to increase production. In recent months, Nigeria, Norway, Iran, Brazil and a number of other countries have increased production, somewhat smoothing the price spike provoked by the actions of the oil cartel. In addition, the US has been selling off its rapidly dwindling strategic oil reserves, keeping prices and inflation under control. Such a sale is, of course, forced and extremely untimely. However, the summer season with increased fuel consumption is coming. But the actions of OPEC+ leave no other choice for the US administration.
But there is a presidential election coming up. The Democrats, if they hope to retain power, cannot go to the polls either with accelerating inflation that will hit the population, or with a collapsed stock market that will very likely start depressive processes in the real sector of the economy. And there is still a year and a half until the elections – a period that justifiably seems too long in the current situation.
Moreover, the United States has less and less leverage to influence the situation, even in the short term. The “betrayal” of the former main Middle Eastern ally – Saudi Arabia – is perhaps the biggest problem for Washington. Worse, China has become the beneficiary of Saudi alienation. Beijing managed to get Riyadh and Tehran to the negotiating table, reducing the likelihood of a military confrontation between the main (not including Russia) oil suppliers.
Attempts by the US and Britain to ignite a new front – already between Israel and Iran – may prove successful. But even if they succeed in setting the Middle East on fire, the only thing the US will achieve is to get on China’s nerves. After all, the conflict in the Middle East will cause an even greater (if not galloping) increase in oil prices, which will stimulate the economic crisis in Europe and the US, and certainly will not harm Russia.
Translation: V. Sergeev
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