The oil balance of power

The production cut announced by OPEC+ sparked criticism from the West, and other voices are beginning to join in, such as that of India

PHOTO/Reliance Industries Limited en Jamnagar vía AP  -   Crude oil refinery in the Indian state of Gujarat

Oil production continues to generate controversy in the midst of the global energy crisis.  

The Organisation of Petroleum Exporting Countries (OPEC) together with allied countries such as Russia, known as OPEC+, recently took the decision to abruptly cut oil production in November.  

The OPEC+ alliance, led by Saudi Arabia and Russia, announced that it would cut its crude oil production by two million barrels per day, double what was planned and the largest decline in oil supply since May 2020. Producing countries were seeking a recovery in oil prices that had fallen to around $90 from $120 three months ago due to fears of a global economic recession, rising US interest rates and a stronger dollar scenario. 

AP/AHMED JADALLAH - An oil tanker is being loaded at Saudi Aramco's Ras Tanura oil refinery and oil terminal in Saudi Arabia

The cut was announced by Iran's deputy Oil Minister Amir Hossein Zamaninia after a meeting between OPEC and 10 other oil producers in Vienna in early October to give a signal of strength to the market, in a very complex environment of falling prices, doubts about the evolution of demand, production problems and sanctions on Russian oil due to the Russian invasion of Ukraine.  

This production cut provoked resounding opposition from the West, with the United States and the European Union (EU) at the forefront, since, in the midst of the current energy crisis caused by the war in Ukraine and also the harsh inflation that is plaguing many countries, the decision means a rise in oil prices that aggravates the current situation. It is well known that with reduced production and less stock on the market, the logical consequence is a rise in oil prices, which is not beneficial given the current situation.  

REUTERS/AMIT DAVE - Oil and Natural Gas Corp's (ONGC) logo in Ahmedabad, India

US President Joe Biden said he was "disappointed" with OPEC+'s decision and considered it "short-sighted". "The president is disappointed by OPEC+'s short-sighted decision to cut its production quotas while the global economy is grappling with the continuing negative impact of Putin's invasion of Ukraine," the White House said in a statement.  

In this context, Biden ordered the Department of Energy to release 10 million barrels of oil from the Strategic Petroleum Reserve, and "will continue to order reserve releases if appropriate to protect American consumers and promote energy security", as the White House itself reported. The US also explained that in the current context, in which energy supply is vital, "this decision will have the greatest negative impact on low- and middle-income countries". 

PHOTO/Bandar Algaloud/Courtesy of the Saudi Royal Court via REUTERS - Saudi Crown Prince Mohammed bin Salman welcomes U.S. President Joe Biden at the Al Salman Palace upon his arrival in Jeddah, Saudi Arabia July 15, 2022

The United States took the lead in opposing the cut in oil production, something that pitted the US against its allies in the Middle East, such as Saudi Arabia and the United Arab Emirates. On previous occasions, Joe Biden had urged Saudi Arabia and the United Arab Emirates not to cut oil production in order not to make the market more expensive, but US pressure did not bear fruit. In fact, the two Arab countries distanced themselves from the US and wanted to show that they were not following US dictates. A situation that opened up a scenario of cooling relations that also had to do with a certain disenchantment within the Arab world over what they saw as a lack of interest in the Middle East on the part of the American giant, which was more focused on turning its sights towards Asia, where there is a strong political and economic contest with China, the United States' great geopolitical rival at present. Moreover, it was understood that the United States, with its new way of generating oil through fracking, was already less dependent on the region for energy and less interested in the issues that concern the countries in the region, as they are less dependent on Arab crude.  

REUTERS/SIVARAM V - A man paints the logo of oil refiner Bharat Petroleum Corp (BPCL) on a wall on the outskirts of Kochi, India
India arrives on the scene

Saudi Arabia and the rest of the OPEC member states wanted to distance the decision to cut production from a possible political motivation and justified the decision on purely economic grounds. Although it was considered undesirable from a Western perspective for the main oil-producing countries to align themselves with Vladimir Putin's Russia at a time of general international condemnation of the invasion of Ukraine. In this regard, Suhail al-Mazrouei, the Emirati Energy Minister, pointed out that OPEC+ is a reliable technical organisation for balancing oil supply and demand that is detached from political considerations. However, even if it were only economically motivated, the rejection in the West was automatic, and other opposing voices have followed suit, such as that of India, which could thus become the first renowned member of the cartel of oil consumers that both the US and the EU were calling for in order to confront the supposed market monopoly of OPEC+. 

India thus entered fully into the circle of disagreement over the OPEC+ decision. India's Oil Minister Hardeep Singh Puri this week urged the oil alliance to consider the impact of its decision. This shows that India has aligned itself with the US in opposing OPEC+'s decision to cut production. 

As reported by Al-Arab, several analysts see this move as the activation of an alliance of consumers and those affected against the oil producers' organisation in order to balance the balance in terms of the power games established around crude oil. 

REUTERS/AMR ALFIKY - India's Minister of Petroleum and Natural Gas Hardeep Singh Puri speaks during the Abu Dhabi International Petroleum Exhibition and Conference (ADIPEC) in Abu Dhabi, United Arab Emirates

This Indian stance, with a less harsh tone than that shown in the opposition of the United States and the EU, can be interpreted as a move to create a group of consumer countries to act as a counterweight to the power exercised by OPEC+ and to form a more powerful common front against the OPEC+ monopoly, which is of no benefit in the current situation marked by the energy crisis and unleashed inflation. Similar positions to the Indian position are now expected to emerge from other countries so that the disagreement over the OPEC+ decision does not look like a disagreement of Washington and Brussels with the main oil exporting countries.  

Speaking on the sidelines of the Abu Dhabi International Petroleum Conference (ADIPEC 2022), Hardeep Singh Puri said the OPEC+ decision was "sovereign". But he went on to say that "they should take into account what is happening in the world and what is the impact of their decisions". 

India relies on imports to meet 85 per cent of its oil needs and the country consumes around five million barrels of oil a day, which is almost 5% of global consumption, so it is hit hard by this issue.  

Interestingly, Russia has become India's largest oil supplier in October, surpassing Iraq and Saudi Arabia with 946,000 barrels per day. Russian crude accounted for 22% of all Indian imports last month, while Iraq's share was 20.5% and Saudi Arabia's 16%. 

AFP/ARUN SANKAR - Barrels of oil at a petrol station in Chennai

India is the world's third largest importer of crude oil, with Russian fuel purchases in October 8% higher than in September. India was a small buyer of oil from Russia and, after Western countries began to reject Moscow's crude, the Asian nation became one of the main destinations for the Kremlin's exports, along with China, something to be expected in the Chinese case due to the economic and trade agreements reached between Vladimir Putin and Xi Jinping shortly before Russia's invasion of Ukraine. The claim for Russian oil in this case is that it is much cheaper than that offered from the Middle East and Africa.  

The Indian minister's comments, if anything, urge the major producers to review their stance, which saw the interests of OPEC+ countries, which increase their profits by reducing oil production and increasing prices from lower stocks, prevail over the interests of other affected countries, such as India.  

In the face of these moves, a conciliatory and sympathetic response was forthcoming. Such as that of the United Arab Emirates. In this regard, Suhail al-Mazrouei, the Emirati Energy Minister, also said at the Abu Dhabi International Petroleum Conference that the OPEC+ group is ready to provide the world with the oil supplies it needs and is ready for, and that if consumers need more, all it takes is a phone call. "I can assure you that we in the UAE, as well as our colleagues in OPEC+, are willing to supply the world with what it needs," Al-Mazrouei said, but he also made another clear message: "At the same time, we are not the only oil producers in the world," as reported by the Associated Press. 

AP/KAMRAN JEBRELI - UAE Energy Minister Suhail al-Mazrouei, centre, speaks as Indian Minister of Petroleum and Natural Gas and Housing Hardeep Puri, right, looks on during the opening ceremony of the Abu Dhabi International Petroleum Exhibition and Conference

Analysts believe that the Emirati minister's statements show OPEC+'s willingness to dialogue with the consumer cartel without preconditions, and to provide sufficient quantities of production to provide balance in the market, considering that this position has undoubtedly been coordinated with Saudi Arabia, which may find in the Indian invitation an opportunity for dialogue and a way out of the stage of tension between Washington and Riyadh. 

OPEC+ is expected to hold its next meeting in Vienna on 4 December, a day before the G7 agreement to curb Russian oil sales by imposing a price cap comes into force. 

Meanwhile, Energy Ministers and CEOs of major oil companies in Abu Dhabi met to discuss oil and gas investments, crude markets, energy prices and economic growth at a time when Russia's invasion of Ukraine has shaken the global oil trade.

REUTERS/DANISH SIDDIQUI - Fuel depot in Mumbai, India

US energy envoy Amos Hochstein said energy prices must be priced for economic growth, and that the oil and gas sector needs more investment. He said that investments by the US and other countries were not enough, stressing that "we all need to invest and innovate whatever our position in the energy landscape", as reported by Al-Arab. Hochstein added at ADIPEC 2022 that the relationship between the US and the UAE is "strong, long-standing and permanent" and that differences on oil policy are not so serious: "Disagreement is allowed. It's much less dramatic than people think". 

It is worth noting that these leading Arab countries have also been developing economic diversification programmes for years in order not to depend so exclusively on oil. The Saudi kingdom's Vision 2030 plan, led by Crown Prince Mohammed bin Salman, is famous, focusing on heavy monetary investment in areas such as tourism, sports, clean energy, infrastructure, etc., in order to boost these sectors and avoid dependence on oil.  

America Coordinator: José Antonio Sierra.