"US-Saudi New Tensions" Oil-Producing Countries' Coordinated Production Cuts... Clear New Cold War (Comprehensive)

The Organization of the Petroleum Exporting Countries (OPEC) and the coalition of major non-OPEC oil producers including Russia, known as OPEC+ (Plus), will begin voluntary additional production cuts starting next month. These cuts are separate from the large-scale reduction policy decided at the OPEC+ meeting in October last year, with the total reduction amounting to about 3.7% of global demand. Analysts suggest that as Saudi Arabia, which is leading these cuts, aligns closely with China and Russia while opposing the United States, the rift in the new Cold War conflict will deepen.

According to major foreign media on the 2nd (local time), Saudi Arabia announced it will implement a voluntary production cut of 500,000 barrels per day (bpd) or less than 5% of its total daily crude oil production starting next month. The Saudi Ministry of Energy explained that the cuts, expected to continue until the end of the year, were proactively taken to stabilize the international crude oil market. On the same day, the United Arab Emirates (UAE) also announced it would reduce production by 144,000 bpd from May until the end of the year. UAE’s state-run WAM news agency reported that this voluntary cut is a measure to reduce market volatility.

Iraq also announced plans to cut 211,000 bpd on the same day, and Kuwait (128,000 bpd), Oman (40,000 bpd), Algeria (48,000 bpd), and Kazakhstan (78,000 bpd) joined the voluntary cuts. Member countries that are already producing below their quotas due to equipment shortages reportedly did not participate in this voluntary reduction.

Russia decided to extend the 500,000 bpd production cut, which began last month, until the end of the year. Russian Deputy Prime Minister Aleksandr Novak issued a statement saying, "As a responsible participant in the oil market, Russia will implement a voluntary production cut of 500,000 bpd until the end of this year."

Adding up the additional cuts announced on this day, the total reduction ranges from 1.16 million to 3.37 million bpd, corresponding to up to 3.7% of global demand. Foreign media noted that this voluntary cut is an additional measure separate from the large-scale reduction policy decided at the OPEC+ meeting in October last year, and it is unusual that it was announced abruptly over the weekend before the Asian market opened.

These oil-producing countries explained that the cuts were in response to the sharp drop in oil prices following the ripple effects of the Silicon Valley Bank (SVB) collapse in the United States spreading to Europe. Due to the bank failure, international oil prices fell below $70 per barrel last month, marking the lowest level since December 2021. Amrita Sen, Chief Research Officer at Energy Aspects, described the additional cuts as "a preemptive measure to prepare for potential demand weakness caused by the banking crisis."

[Image source=AP Yonhap News]

Bloomberg News pointed out that this additional production cut could trigger new tensions between the Biden administration and Saudi Arabia. Analysts say that Saudi Arabia, which has been developing cooperative relations with China and moving away from unilateral dependence on the United States, is siding with Russia through successive production cuts, making the new Cold War structure more pronounced.

Helima Croft of RBC Capital Markets said that Saudi Arabia is pursuing a de-Americanization strategy following the deterioration of relations with the United States. She interpreted, "This agreement clearly reflects Saudi Arabia’s policy of putting its own country first," adding, "Saudi Arabia, which is aligning closely with China, is sending a message to the United States that 'the world is no longer unipolar.'"

The United States has warned that the OPEC+ policy of maintaining production cuts since the end of last year has caused international oil prices to rise sharply, potentially pushing the global economy into recession. It argues that increasing production is inevitable to ease inflation and limit the revenue from oil sales by Russia, which invaded Ukraine.

In response, the Biden administration had pressured Saudi Arabia not to cut production before the OPEC+ meetings. President Biden personally met with Saudi Crown Prince Mohammed bin Salman in July last year to request increased production but achieved little success.

Experts predict that this measure will pose an immediate risk of rising oil prices. The investment firm Pickering Energy Partners forecasts that oil prices will rise by about $10 per barrel due to this production cut. The oil brokerage PVM expects an immediate price surge when trading resumes on the 3rd after the weekend.

This content was produced with the assistance of AI translation services.