While the Fed is raising rates to try to stem inflation, OPEC is playing spoilsport.
OPEC picks its side
To everyone’s surprise, OPEC has just announced that it is reducing its production. 1.6 million barrels per day. Saudi Arabia, Russia, the United Arab Emirates, Iraq, Kuwait, Oman and Algeria are concerned. 2/3 of the decrease is supported by Moscow and Riyadh.
This decline comes on top of that of 2 million barrels decided in October 2022. The Wall Street Journal also reveals that the Crown Prince of Saudi Arabia no longer intends “to please the United States”.
The White House has so far refrained from making a scene as in October. But the initiative was still described as “not recommended”…
This threat shouldn’t have much effect. Especially since the kingdom has just joined the SCO (Shanghai Cooperation Organisation) as an observer. Not to mention the recent affront to the petrodollar by authorizing China to pay for its naphtha in yuan.
The collapse of US influence over Saudi Arabia and the Kingdom’s new alliances with China and Iran confirm the failure of US strategy. As Robert F. Kennedy Jr. said on Twitter:
“Over the past decade, our country has spent trillions destroying roads, ports, bridges and airports. China spent the same, but to build the same in developing countries. The war in Ukraine is the final collapse of the short-lived “American Century” of the neoconservatives. Neocon projects in Iraq and Ukraine have cost $8.1 trillion, gutted our middle class, made the military might and moral authority of the United States a laughing stock. They further pushed China and Russia to form an invincible alliance and destroyed the dollar as an international currency. […]. »
2008 remake?
Saudi Arabia’s surprise decision aims to support Russia, which is already busy keeping NATO at bay. The Russian sacrifice offers a window of opportunity for the rest of the world to emancipate itself from the dollar and from the permanent blackmail of the Pax Americana.
Saudi Arabia doesn’t have much to lose in terms of market share anyway. With Russia under sanctions, the peak of shale oil in the United States and the weakness of investments by international oil companies, no competitor is on the horizon.
Furthermore, even if the price of a barrel of Brent has risen to $85, we are at a relatively normal level from a historical point of view. The average price per barrel for this century (corrected for inflation) is 74 dollars per barrel. Goldman Sachs even sees 95 dollars by the end of the year. And $100 by the end of 2024…
Since oil is irreplaceable for the functioning of the world economy, this will mechanically result in a new inflationary surge. And possibly further interest rate hikes from the Fed.
A remake of the 2008 crisis is therefore in the making. At the time, it was also the rise in oil prices that prompted central bankers to raise rates. Everyone knows what happens next. Markets collapsed and the US government bailed out the banks by borrowing freshly printed money from the Fed.
The world escaped hyperinflation thanks to one thing: US Shale oil. It was the doubling of US oil production (from 6 to 12 million bpd) that made it possible to start again. And now ?
The price per barrel is currently the same as in 2007, shortly before OPEC cut production, which will trigger two weeks later the “subprime” crisis (which was actually an oil crisis). 2023, Repeat again?
Russia at the bedside of India
The objective of Russia and Saudi Arabia is very likely to take the price of a barrel above $100 to trigger a major crisis in the West.
Unfortunately, the rest of the world will not be spared. Many neutral countries could then let go of Russia. And in particular India which, with China, is a crucial ally for Russia. The latter recently became one of its top five trading partners.
Russian Energy Minister Alexander Novak says oil sales to India have increased 22-fold. In March, India was the biggest buyer of Russian crude oil. Deliveries to India are expected to account for more than 50% of all Urals oil seaborne exports this month. China comes second.
These developments are important since an explosion in the price of a barrel could generate serious political unrest in India. However, without the support of Ghandi’s country, the game would be very complicated for Vladimir Putin. Hence his precautions.
Indeed, OPEC’s decision came three days after the visit of Rosneft CEO Igor Sechin in Delhi. Details were not disclosed. But certainly it was to protect the Indian subcontinent from the volatility expected in the world oil market.
The presence of Oil Minister Puri portends a high-level political decision. Especially since the head of the security services of the Russian Federation Nikolai Patrushev was also on the trip to meet Prime Minister Modi.
Put simply, Russia has set up a firewall around India to insulate it from crude volatility while the United States crosses swords with Saudi Arabia.
Which means that the sling against the dollar will continue even more. On this subject, do not miss our next paper explaining why Bitcoin is inevitable to avoid a world war.
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