OPEC+ cuts oil production despite US efforts to convince them to keep prices low

OPEC+ cuts oil production despite US efforts to convince them to keep prices low

Plus: Did Ukraine attack the Kerch Bridge in Crimea, and if so, what does it mean for the course of the war?

Hi there Intriguer. Aaand the Nobel Prize in Literature goes to… Annie Ernaux, the French author known for her poignant but observational memoirs. While many were hoping Salman Rushdie would win the award following the horrific attack on him this summer, the New Yorker celebrated Ernaux’s win and said it “marks the ascendancy of the memoir as the leading genre of our time”. If you’re more of a watcher than a reader, ‘Happening’ is an adaption of one of Ernaux’s novels and has 99% on Rotten Tomatoes.

Today’s briefing is a ~4.5 min read:

  • 🛢️ The politics of oil: OPEC+ cuts production in a blow to US diplomacy.
  • ➕ Plus: Armenia and Azerbaijan agree to an EU border mission, a South Korean missile test goes all wrong, and what does the Kerch Bridge attack in Crimea mean for the Russo-Ukraine War?

🛢️ OPEC+ countries try to pump up oil prices

In brief:

  • OPEC+, the cartel of 23 oil-exporting countries, has announced it will cut oil production by two million barrels per day starting in November.
  • The news has angered Washington and satisfied Moscow, but beyond its geopolitical implications, the decision shows that OPEC is trying to reassert its control over an increasingly volatile oil market.

Oil prices had been decreasing since June, which also decreased revenue for OPEC+ countries. Via naturalgasintel.com

Expect oil to get more expensive

Last Wednesday, the Organization of the Petroleum Exporting Countries (OPEC+) announced significant cuts to oil production, much to the chagrin of the US and its allies.

  • Starting in November, OPEC+ countries will decrease their oil output by two million barrels per day, or around 2% of global oil output.

According to the cartel’s press release, the decision was made “In light of the uncertainty that surrounds the global economic and oil market outlooks”, which in plain English means that OPEC isn’t happy about low oil prices.

The fallout

1. 🥶 For the West

This is terrible news for the US, Europe and its allies and, more specifically, for US President Joe Biden, who has spent the past several months pleading with Gulf countries to increase oil output. OPEC’s move is an apparent setback for US diplomacy.

Output cuts will mean higher oil prices this winter, something countries already facing a cost of living crisis have been desperate to avoid.

  • In a move some analysts say plays into OPEC’s hands, the White House said it would dip into the US’s Strategic Petroleum Reserve to stabilise prices at the pump ahead of November’s mid-term elections.

2. 👑 For the US-Saudi relationship

Saudi Arabia’s relationship with Washington just got worse. A slew of US officials have lashed out at Saudi Arabia, OPEC’s unofficial leader. The production cut might have been guided by self-interest, but Saudi leaders knew it would have geopolitical consequences.

As Atlantic Council Senior Director Landon Derentz put it:

“The scale & speed of cuts being publicly discussed will be seen by many in DC as an affront to global economic policy at best & a personal political attack on the Biden admin at worst.”

Gulf analyst Cinzia Bianco agreed, saying the move is “nothing but political!”. 

3. 🪆 For Russia

Christmas just came early for Russia. Higher oil prices mean increased oil revenue for Moscow and its war economy, especially considering the G7 oil price cap set to go into effect on 5 December.

  • But perhaps even more pleasingly for the Kremlin, the OPEC+ decision shows that despite Western pressure, plenty of countries are prepared to deal with Russia when it also helps their bottom line.

It’s about sending a message

The geopolitical volatility of the last two years has challenged OPEC’s ability to command the oil market.

  • By announcing cuts to production, OPEC+ countries sent a clear message that controlling the global oil market trumps just about any other concern.

As energy analyst Dan Dicker told Yahoo Finance:

“From a psychological point of view, it’s enormous. This is OPEC reasserting their control of a market that has [a] bad […] supply problem.”

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North & Central Asia

🇦🇲 Armenia

Armenia and Azerbaijan have agreed to a civilian EU mission along their contested border to help delineate the frontier over the next two months.

  • The mission was approved after fighting broke out once again last month, killing more than 280 people.
  • Russia’s absence from the negotiation efforts is notable as Moscow has often taken on the role of peacekeeper, but with its attention focused elsewhere, the EU and US have ramped up their diplomacy in the region.

🇨🇳 China

The UN Human Rights Council voted against discussing the Xinjiang report published last month, in what China has hailed as a win against “US coercion”.

  • Seventeen countries voted in favour of formally discussing the report, but with 19 votes against and 11 abstentions, the motion failed to obtain the simple majority needed to pass.
  • In the report in question, former UN Human Rights Commissioner Michelle Bachelet accused China of “serious human rights violations” against its Uyghur population.

🇯🇵 Japan

Japan’s foreign exchange reserves fell by a record $54B last month after authorities spent billions to prop up the falling yen.

  • The country’s forex reserves are now at their lowest levels since 2017.
  • Many emerging market economies have seen their foreign reserves decline as the cost of imports has increased while their currencies have depreciated.

🇰🇿 Kazakhstan

Last week, Kazakh authorities declined to comply with a Russian demand to expel the Ukrainian Ambassador to Kazakhstan, Petro Vrublevskiy, after he made a crude comment about killing Russians.

  • Instead of expelling Vrublevskiy, Kazakhstan asked Ukraine for a replacement.
  • Reflecting the changing geopolitical balance in Central Asia, Kazakh Foreign Ministry Spokesman Aibek Smadiyarov took issue with Russia’s request, describing it as “discordant with the nature of the allied relations between Kazakhstan and Russia as equal strategic partners”.

🇰🇷 South Korea

The South Korean military apologised after a missile launched during a military drill last week crashed to the ground, alarming residents in the coastal city of Gangneung.

  • The missile test was part of joint South Korea-US military drills and was intended as a robust response to the missile drills launched just hours before by North Korea.
  • Luckily the missile did not explode, but it did cause significant concern amongst Gangneung residents, who quite understandably thought North Korea was attacking them.

Crimea’s bridge is falling down

Source: Twitter @BNOnews

The news: The Kerch Strait Bridge, a 19km bridge connecting Russia to occupied Crimea, was hit by a powerful explosion in the early hours of Saturday morning.

  • The blast was so strong it caused parts of the bridge to collapse into the water and killed at least three people.
  • Ukraine hasn’t formally claimed responsibility for the attack, but Kyiv’s jubilant reaction hints at their involvement.

There are plenty of theories circulating about how the attack was carried out:

Why it matters: After a month of military setbacks, the attack is yet more evidence of the failure of Russian military intelligence services.

  • The construction of the bridge was a pet project for President Putin, so it’s possible it was targeted as much for its symbolic significance as its military value.

“On the infowar side of things, it is a clear coup for Ukraine, given its demoralising effect on Russian society and the military. It is also a way to show its capability to the West and increase optimism about the outcome of war.”

Leonid Ragozin, Russia expert and former BBC journalist

What’s next? Putin called a Russian Security Council meeting for Monday (today), likely to discuss the attack and how to respond.

  • There were reports late Sunday that Russia had successfully moved small freight trains across the damaged portion of the bridge, suggesting that Crimea is not entirely cut off from Russia to the east.

Russia is likely to stay the course: While the attack might make it harder for Russia to resupply its troops in southern Ukraine, it is unlikely to change Putin’s game plan.

  • The Kremlin likely thinks that if it can stabilise the battlefield (i.e. avoid losing more ground in the south and east), then the West’s expensive support for Ukraine will falter during the northern winter as a cost of living crisis forces politicians to prioritise their own citizens.

Of course, the elephant in the room is still Putin’s threat to use nuclear weapons, which one western analyst said, “can no longer be wholly discounted”.

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