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With the November midterms just weeks away, four letters haunt President Joe Biden and Democrats: OPEC.
Last week, the Organization of the Petroleum Exporting Countries (OPEC), led by Saudi Arabia and Russia, and its allies said they would cut oil production by 2 million barrels a day, the biggest cut since the pandemic began. It threatens to raise gasoline prices just weeks before the U.S. midterm elections.
The group announced the production cut following an in-person meeting from March 2020. This reduction is equivalent to 2% of global oil demand.
Biden administration A statement criticized the decision, saying it was “short-sighted” and would harm some countries already struggling with high energy prices.
Production cuts will begin in November. OPEC+, which brings together OPEC countries and allies like Russia, will meet again in December.
For a perspective on the OPEC+ decision and a better understanding of how it affects everyone, we turned to you Hossein AskariHe teaches international business at George Washington University.
Our conversation, conducted over the phone, has been lightly edited for flow and brevity.
What things: Can you walk us through this latest OPEC decision? What exactly is going on?
Askari: So when the war started in Ukraine, I’m sorry to tell your audience, but the United States was not exactly prepared for what it was going to do. Allowed Russia for this and that. So the price of oil started to rise. At the same time, the US actually imposed sanctions on Russian oil, not on gas, but on oil. So Russian oil was scarce in Western markets.
Russia actually started selling more and more of its oil to China and India and began lowering its prices to those countries. So they would buy Russian oil, but there was a shortage of oil.
Another reason the deficit has developed is, if I may say so, sanctions like America is a crazy cowboy. It has allowed Venezuela for years.
But with Saudi Arabia’s new capable ruler known as MBS, he aligned with Putin. When President Biden went to see him a few months ago and asked him to increase oil production — I’m sorry to say this, I have to get into this politics — I think the United States really embarrassed itself by doing that. .
Of course, MBS did not respond favorably. But now he has really gone above and beyond. He agreed within OPEC – of course he’s OPEC’s main spokesman with Russia – that they would cut.
What things: What does OPEC decision What does that mean for the average American?
Askari: From where we are now, crude oil prices will rise to, at most, $5 per barrel by the end of this year. Now, many people think they will go even further than that. I don’t believe that because I think the world economy is going to grow less, and I think we’re going to see some Venezuelan oil come into the market, and I think we’re going to see some deals done. Come to the market.
For gasoline, Americans could see prices climb from where they are today, by 30 to 50 cents a gallon, if nothing else happens.
However, Americans have another problem, home heating oil, which may also be gone. So for the average American, whatever they are, they’re going to pay something more for a gallon of gasoline at the pump. In fact, I think the fuel oil they use to heat their homes has a greater impact. So it squeezes the average American. There are no two ways about it.
What things: What should America do now?
Askari: I think the United States should be very tough with Saudi Arabia because we are backward to accommodate them in every way. We looked at what they did in a different way. Now is the time to get tough. They were harsh with us. I think the US president should be tough with Saudi Arabia.
What things: What else can America do to help? Oil price In the immediate term?
Askari: I think without a doubt this administration has a very bad relationship with the American oil companies and energy companies. I think there needs to be more cooperation behind the scenes with the oil companies and management, because now you need them to cooperate.
I know a lot of people don’t believe in fracking, but maybe it’s time to do some more fracking. Maybe it’s time to increase output. They can also increase productivity elsewhere. I think it will be very useful.
American oil companies – I’m not a supporter of the oil companies, please don’t get me wrong – but I think the administration basically wants to put them out of business.
What things: Anything else you’d like to add?
Askari: Some people think OPEC decisions are purely economic. Some think politically. Especially for Saudi Arabia it is always both.
In reality it is Saudi Arabia and the United Arab Emirates that drive OPEC’s decision. I think the Americans need to understand that it is not the other members, not Nigeria or Iran. I think Americans need to understand who are our friends and who are not.