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Capping Oil Price Will Be Aimed Only At Russia; OPEC Not In the List: United States

United States treasury official confirmed that the plan for capping oil prices from Russia would not be mirrored against OPEC countries

Marifur Rahman by Marifur Rahman
October 20, 2022
in Ultility, The Global Economics, Top Stories
Reading Time: 3 mins read
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Capping Oil Price Will Be Aimed Only At Russia; OPEC Not In the List: United States

Capping Oil Price Will Be Aimed Only At Russia; OPEC Not In the List: United States

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A United States treasury official confirmed on 19th October that the plan for capping oil prices from Russia would not be mirrored against OPEC countries. This development comes after OPEC announced a reduction in production to the tune of 2 million barrels per day.

According to the official, the United States (and thus, G7 countries) has reassured the bloc of oil-producing countries that it won’t pursue a similar strategy against them.

This announcement could alleviate some tension between the United States and Saudi Arabia- the most powerful among the OPEC countries that were simmering because of the production cut by OPEC producers. Washington had warned Saudi Arabia that the U.S would consider an oil production cut as a collaboration with Russia in its war against Ukraine. 

Biden Government in a Tricky Situation: Mid-Term Election Around the Corner

The United States – along with other G7 countries – have marked 5th December as the day when the Russian oil price cap would come into effect. Meanwhile, Russia has already warned the West sternly that it would stop oil supplies to any country that joins the G7 in its attempt to cap Russian energy prices.

The Biden government is smart enough to make sure that the price cap comes into effect after the midterm election on 8th November. This way, even if the price-cut plan backfires in the backdrop of a looming recession, it would not affect the government’s performance in the election.

However, now that the OPEC countries have reduced production, oil prices can dangerously go up, triggering a recession and rising prices of products associated with crude oil. This will hurt people back home in the U.S, which will negatively impact Biden’s election performance.

Oil Price Surges and Recession Go Hand in Hand

If historical data is anything to go by, the rise in oil prices has always been followed by recession. Researchers like Prof. Andrew Oswald, Rotenberg, Woodford and others have noted that the oil price surges in 1973, 1979, 1990 and 2007 were immediately followed by recessions. People in the United States have already started reporting an increase of 20 to 30 cents in gas prices during the past week. 

The U.S Treasury is putting on a brave face, according to this Reuters report, as they claim that the effect of this price surge seems to be insignificant. According to the treasury department’s estimates, it would need a price surge of $30-$40 for the country (and the world) to fall into a recession trap.

 

Capping Oil Price Will Be Aimed Only At Russia; OPEC Not In the List: United States
Capping Oil Price Will Be Aimed Only At Russia; OPEC Not In the List: United States

 

There Is No Political Agenda, Says Saudi

Saudi Arabia has vehemently opposed the allegation that the production cut is politically motivated. It maintains that the decision was taken by all the OPEC countries unanimously, as there was sufficient reason to believe that oil prices would have drastically gone down had this decision not been taken. Keeping the midterms in mind, Washington had requested Saudi Arabia to delay the production cut for a month. However, the 80-year-old diplomatic cooperation between the two nations seems to have weakened.

The Complex Game of Geopolitics

Geopolitics has taken a curious turn during the past few months. On the one hand, Saudi Arabia is trying to create a foreign policy with minimal American influence, which is why Biden’s visit to the Kingdom back in July failed to repair the strained relationship between the two nations. And on the other hand, the West is trying everything to ensure that Russia gets as little support from other countries as possible. The U.S had no choice but to keep Saudi Arabia (and the rest of OPEC producers) pacified. Hence, even after Biden’s “there’s going to be some consequences” comment, the U.S Treasury department had to explicitly convey that the price cap would not be forced upon OPEC producers.

It is also to be noted that although Saudi is trying to project a picture of a united OPEC, in reality, U.A.E, Kuwait, Iraq and Bahrain have opposed this proposal of production-cut. It is only to keep the status quo in OPEC intact that these countries finally agreed on the proposed reduction in production.

Via: short URL
Tags: Capping Oil Priceopecsaudi arabiaUnited States
Marifur Rahman

Marifur Rahman

Marifur Rahaman is a news analyst who loves to use data analytics to explain political and business news and present insights hidden behind the mountain of information and noise. A student of English literature, Rahaman explores the human angle associated with every news.

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