In the years of the pandemic, the Saudis launched an all-out struggle to conquer new markets. And the conflict with the US was evident from the first lockdown. After the invasion of Ukraine and Western sanctions on Russia, it became obvious that the Saudis would not follow. As the informal leader of OPEC+, Mohammed Bin Salman’s Saudi Arabia has already chosen Russia and, along with other Gulf countries, is interested in joining the BRICS.
Its decision is not linked to persons or factions in the US but to the policy to abolish oil through the “green transition”. The Gulf countries, in fact, do not oppose the US because of ideological or political disagreement, but because of the “green transition” that leads to their annihilation. The so-called Oil States know that they cannot follow the transition without dire consequences.
Saudi Arabia has drawn up the “Vision 2030” program according to which it will transform its economy from one completely dependent on hydrocarbons to one with an expanded production model. The goal is the development of the primary and secondary sector, as well as services, in rates that will transform its current one-dimensional (oil) economy.
“Vision 2030” also includes pharaonic projects, such as “Line”, the city in the desert that will be in a straight line. For all this, Riyadh has drawn up a budget, which has a basic requirement that the price of oil be at $80.9 per barrel. To achieve its plan to transform its economy by 2030, it needs to have a balanced budget and wants Brent to be above $81. This year it has achieved it, as year-to-date the annual average is $81 a barrel. Obviously, he doesn’t want an exorbitant barrel price. He wants the price to move permanently between 80 and 90 dollars.
The US contradiction
The US is now the world’s largest oil producer, but knows that prices above $65 a barrel are holding back its industry. Since last year it “burned” 240,000,000 barrels of its strategic oil reserves, it must buy them back. But these barrels were typically bought at $25. Therefore it cannot repurchase at prices at $75. Due to the “green agenda”, however, it does not allow the leapfrogging of its own production to lower prices internationally.
Essentially, the US is currently aligning with Russia’s strategic goals in crude oil prices! Due to the imposition of a ceiling of $60 per barrel on Russian oil transported by sea, the Russians were forced to seek help from the “masters” in avoiding sanctions, the Iranians, and to build the so-called “dark fleet”. To sell below $60 a barrel, Russia has increased the number of dark fleet ships to 550, up from 120 last year. Because it is one thing to sell to countries next to you (Europe) with 4-7 day shipping and another to sell to Asian countries with 25-35 day shipping.
How Russia avoids Western sanctions
So if the price of a brent barrel at this stage rises well above 80 and jumps to $90, then Putin will not be able to use the aforementioned method of avoiding sanctions. Thus, he prefers the current price situation, resulting in bitter disagreements with the Saudis. This led to the rift that became visible in Vienna. While initially it was to be held by teleconference, it was finally held in person by the members of OPEC, in which Alexander Novak appeared.
The Saudis wanted OPEC production cut by 2,500,000 barrels per day, but other members (notably Russia) wanted no reduction in production baselines. A drop in production of 2,500,000 barrels would push prices to $86-89. Several African OPEC members (Angola and Nigeria) rushed to support Russia’s position since they depend on its grain.
Things became difficult for the Saudis when the other major Gulf player, the Emirate of Bin Zayed, not only agreed with Russia for stability in production, but asked to increase it, citing the investments they have made in infrastructure projects, which they want to start paying off. As a result, the start of the second meeting on Sunday was delayed by 4 hours since the need arose for individual consultations between OPEC members so that a smooth decision could be reached.
The Saudis are the only ones
Finally, the Saudis opted for a “solo performance” and unilaterally decided to reduce their production by 10%, i.e. by 1,000,000 barrels per day. This will start from July. At the same time, OPEC+ decided for the rest of its members to keep their production stable, with the exception of the Emirates, which were allowed to increase it by 200,000 barrels per day. Essentially, the cartel decided on a reduction of 800,000 barrels per day. A reduction that is not so big as to blow up prices. Immediately after the OPEC+ decision, the price of Brent rose by 2.7% and the US WTI by 3%. But Tuesday (6/6/23) showed just how weak that increase was, as prices fell 1.1%.
Despite President Biden’s “green” rhetoric, this year the US is expected to increase its production by 5-7% on an annual basis. If it weren’t for Riyadh’s policy and the ongoing reductions in OPEC+ production, today the barrel would have fallen to $65 or even $60. Therefore, we cannot call the Saudi policy a failure. At the meeting, the Saudis did not get what they wanted, but they stopped the expected drop in the price of oil. And next month they will be under pressure to ask for further reductions.
Those predicting a big drop in prices should take into account that in the summer an increase in tourism and travel will raise demand. In such an environment, it is considered impossible for the price to fall to $60. And if China’s production performance increases, then surely these two reasons will fuel an upward trend of momentum in the price of the barrel. And there is always the risk that the Saudis will proceed with further cuts in July, not counting unexpected factors such as the cessation of mining due to military attacks.
China’s invasion
Those who call the Saudis stupid should think about something else. Throughout this maze of developments, the Saudis have been buying refined diesel (diesel) from the Russians at prices below theirs and selling it cheaply on their domestic market. And their own diesel is sold expensively as an exported product mainly to the West.
China, as the largest importer and consumer of oil, is strategically playing a “golden fleece” game. The prize is the geopolitical “conquest” of the Middle East. It is notable that between 2000 and 2021, China’s trade with Middle Eastern countries increased from $15.2 billion to $284.3 billion. At the moment when the USA despite the trillion that have pushed into the region (peacefully or warlike) in the same period managed to increase trade from 63 to 98.4 billion dollars.
For all this Anthony Blinken will be in the area these days. President Biden’s recent trip was considered a commercial and diplomatic failure, even though the US has had the upper hand for the past three decades in the region. It is now visible to the naked eye that the US is losing strategic hegemony in the Middle East. And the one who claims it openly and clearly now, is not Russia, but China.
