Coming four weeks before the US midterm elections, many in Washington took the unexpectedly large output cut as a personal attack on President Joseph Biden. The fact that OPEC+ hastily gathered in person in Vienna, rather than via video-conference as scheduled, reinforced that perception. The form of the meeting mattered as much as the substance. As Roger Diwan, a veteran OPEC watcher noted, it was “eerie” to observe the cartel jumping into major action on Yom Kippur, almost 49 years to the day of the start of the 1973 Arab oil embargo.
The in-person meeting allowed Alexander Novak, the Russian deputy prime minister under US sanctions, to travel to Vienna. He took the occasion to warn that Russia will stop supplying any country that accepts the G7 oil price cap. The OPEC+ cuts make the threat easier to implement, and therefore more worrying.
The oil-output cut will have two major consequences. Economically, it will keep inflation elevated for longer, forcing the Federal Reserve and every other major central bank into even more restrictive monetary policies, increasing the odds of a global recession. Politically, it’s a boost for Russian President Vladimir Putin in two ways. It channels more money to the Kremlin, which is desperate for revenue to keep its war machine in Ukraine alive and buy local support for the faltering military campaign. And it signals that Riyadh is in the Russian camp, willing to publicly snub Washington. Others in the Middle East, Africa and Asia will feel more comfortable cozying up to Russia. [Continue reading…]