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With just weeks to go until the November midterms, four letters are haunting President Joe Biden and the Democrats: OPEC.
Last week, the Organization of Petroleum Exporting Countries (OPEC) and its allies, led by Saudi Arabia and Russia, said that it will slash oil production by 2 million barrels per day, the biggest cut since the start of the pandemic, in a move that threatens to push gasoline prices higher just weeks before US midterm elections.
The group announced the production cut following its first meeting in person since March 2020. The reduction is equivalent to about 2% of global oil demand.
The Biden administration criticized the decision in a statement, calling it “shortsighted” and saying that it’s harmful to some countries already struggling with elevated energy prices the most.
The production cuts will start in November. OPEC+, which combines OPEC countries and allies such as Russia, will meet again in December.
For one perspective on the OPEC+ decision and to better understand how it affects everyone, we turned to Hossein Askari, who teaches international business at The George Washington University.
Our conversation, conducted over the phone and lightly edited for flow and brevity, is below.
WHAT MATTERS: Can you walk us through this recent OPEC decision? What’s happening exactly?
ASKARI: So when the war in Ukraine started, sorry to tell your audience, but the United States was not very well prepared in what it was going to do. It sanctioned Russia for this and for that. And so the price of oil started going up. And at the same time, the United States actually put sanctions on Russian oil, not on gas, on oil. And so there was less Russian oil in the Western markets.
Russia actually started selling its oil more and more to China and to India and cutting its prices to those countries. So they would buy Russian oil, but there was a shortage of oil.
Another reason why the shortage had developed was America basically sanctions like a mad cowboy, if I may say that. It has sanctioned Venezuela for many years.
But Saudi Arabia, with the new effective ruler who’s known as MBS, he has cozied up to Putin. And so when President Biden went and saw him a few months back and kind of asked him to increase oil production – I’m sorry to say this, I have to throw in this bit of politics – I think America really shamed itself by doing that.
Of course, MBS did not respond positively. But now he, in fact, has gone over the top. He has agreed within OPEC – and of course he’s the main spokesman in OPEC with Russia – that they will cut back.
WHAT MATTERS: What does the OPEC decision mean for the average American?
ASKARI: From where we are now, crude oil prices by the end of the year, my guess, maximum, they’ll go up by $5 a barrel. Now, a lot of people think they’re gonna go up more than that. I don’t believe that, because I think the world economy is going to grow less and I think that we are going to see some Venezuelan oil come on the market, and I think we may see some deals made so some more Iranian oil may come on the market.
For gasoline, I think Americans can see maybe prices going up from where they are today, if nothing else happens, by about another 30 to 50 cents a gallon.
However, there is also another problem for Americans that is home heating oil, and that can also go up. So for the average American, they’re going to pay, no matter what, something more per gallon of gasoline at the pump. And I think there’s going to be more of an impact, actually, on the fuel oil that they heat their houses with. So it’s gonna put on the squeeze on the average American. There’s no two ways about it.
WHAT MATTERS: What should the US do now?
ASKARI: I think the United States should be much, much tougher with Saudi Arabia because we have bent over backward to accommodate them in every way. And we have looked the other way with what they’ve done. And now it’s the time to be tough. They’ve been tough with us. I think the President of the United States should be tough with Saudi Arabia.
WHAT MATTERS: What else can the US do in terms of helping with oil prices in the immediate term?
ASKARI: I think undoubtedly this administration has very bad rapport with US oil companies and energy companies. I think that there should be more behind-the scenes cooperation with the oil companies and the administration because you really need them now 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 increase output elsewhere too. I think that would be extremely, extremely helpful.
And I think the US oil companies – and I’m not a backer of oil companies, please don’t misunderstand – but I think they feel that the administration basically just wants to drive them out business.
WHAT MATTERS: Anything else you’d like to add?
ASKARI: Some people think that OPEC decisions are purely economic. Some people think purely political. It has always been both, especially for Saudi Arabia.
It is really Saudi Arabia and the United Arab Emirates driving OPEC’s decision. I think Americans should understand it’s not the other members, it’s not Nigeria or Iran. I feel Americans should understand who are our friends and who are not our friends.