As the Organization of the Petroleum Exporting Countries Plus (OPEC+), which Russia and Saudi Arabia lead, decided to cut oil production heavily, the global economy will experience a significant impact. The decision is viewed as Russia and Saudi Arabia’s announcement of the “oil war” to the world ahead of winter, where energy consumption increases as the two countries have lost their profit foundation amidst extremely high dollars with rising inflation across the world and decreasing oil prices.
OPEC+, consisting of 23 oil-producing countries, discussed oil production reduction in Vienna, Austria, where the OPEC headquarters are located on Wednesday. It was the first in-person meeting since March 2020, when COVID-19 began to spread. Bloomberg News and the Financial Times reported that Russia and Saudi Arabia are reducing daily oil production by one to two million barrels before the meeting. This will be the most significant reduction in two years and seven months. The Financial Times reported that reduction might unfold gradually over several months.
This presents an emergency for the U.S. administration, which has been desperately trying to keep oil prices under control to mitigate the worst inflation in 40 years. Some of the draft talking points circulated by the White House to the Treasury Department on Monday that CNN obtained framed the prospect of a production cut as a “total disaster.” The White House is mobilizing the Treasury Department to dissuade the OPEC+ member countries’ production cut. The Biden administration is also considering expanding the release of its Strategic Petroleum Reserve and a ban on petroleum export.
If oil prices soar due to the “hegemonic war over oil,” in which the U.S. bans its petroleum export in response to OPEC+’s production cut, it will become difficult for the global economy to avoid a hard landing amid the prolonged inflationary trend. In particular, South Korea’s trade deficit will become even greater as the country has to import oil at higher prices due to the “King Dollar,” which refers to extremely strong dollars.
Eun-A Cho firstname.lastname@example.org