On Sunday, Saudi Arabia and several major oil producers declared their plans to reduce oil production by 1.15 million barrels per day, beginning in May and continuing until the end of 2023. According to the Saudi Energy Ministry, the action was taken in agreement with some members of the Organization of the Petroleum Exporting Countries (OPEC) and other non-OPEC countries as a “precautionary measure” to stabilize the oil market.
Geopolitical Implications: Oil Output Cut Comes as Major Players Shift Alliances and Tensions Increase
This weekend, Saudi Arabia and some major oil producers, including Russia, the United Arab Emirates (UAE), Iraq, Kuwait, Oman, and Algeria, agreed to decrease oil production by a total of 1.15 million barrels per day.
Saudi Arabia and Russia declared that each nation will cut back oil production by 500,000 barrels per day (bpd), while the UAE will reduce output by 144,000 bpd and Kuwait will reduce production by 128,000 bpd.
The news of the oil superpowers’ decision to decrease supply follows the cuts made in October, when oil-producing nations announced a cut in production by 2 million bpd. At that time, the Biden administration expressed its displeasure and warned of “consequences.”
On Sunday, the White House addressed the unexpected cuts, and a spokesperson for Biden’s National Security Council said the United States does not think that decreasing production is advisable.
The spokesperson also noted that Biden’s government will continue to cooperate with oil producers to keep American gas prices low. This news comes after several reports in the past week indicating that some major countries are moving away from U.S. dollar settlements.
According to Alexander Babakov, the deputy chairman of the State Duma, the BRICS countries (Brazil, Russia, India, China, and South Africa) plan to discuss the creation of a new reserve currency for the group of countries. Additionally, China recently reached a bilateral deal with Brazil that enables trades in their respective national currencies to purchase Liquefied Natural Gas (LNG).
Furthermore, with China’s rapid growth, the BRICS alliance is now the world’s largest gross domestic product (GDP) group. Saudi Arabia and other major oil producers believe that the cut in production will help stabilize the oil market and is being implemented as a “precautionary measure,” according to Riyadh’s energy agency.
Data suggests that despite the oil production cut in October, prices of Brent crude and other measures of oil per barrel have dropped from $95 per barrel to $80. Last October, Democrat policymakers wanted to cut ties with Saudi Arabia, remove troops from the region, and end arm sales.
What is your take on the implications of the oil production cuts by Saudi Arabia and other major oil producers? Do you think it will have a noticeable effect on global oil prices and the economy? Share your thoughts about this subject in the comments section below.
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