The story so far: On October 4, the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, cut oil production by 2 million barrels per day (bpd), boosting oil futures. crude oil. According to reports, the next day November crude oil futures on WTI were at $87.89, up 0.15%, while December Brent Oil Futures were at $93.49, up 0.13%

Even crude oil futures on the Multi Commodity Exchange (MCX) were trading at ₹7,178, up 0.18% and November futures were trading at ₹7,138, up 0, 15% on October 5. The production cut will be implemented from November, as decided by the OPEC+ meeting in Vienna.

While Saudi Arabia – one of the founding members of OPEC – claimed that the reduction in production (equal to 2% of world supply) was due to the weakening of the world economy and the rising interest rates in some Western countries, the United States and its NATO allies accused the group of “collusion with Russia”.

Here is an overview of the most influential oil cartel, the reasons for the reduction in oil production, the Western backlash and the effect on India:

What is OPEC+?

Founded in 1960, the Organization of the Petroleum Exporting Countries (OPEC) originally included Iran, Iraq, Kuwait, Saudi Arabia and Venezuela as founding members to “unify and coordinate the oil policies of its member countries to ensure a steady supply of oil to consumers and a fair return to investors”. Countries like Qatar, Indonesia, Libya, United Arab Emirates (UAE), Algeria (1969), Nigeria, Ecuador, Gabon, Angola, Equatorial Guinea and Congo went on to joins the group. However, Ecuador, Indonesia and Qatar suspended their membership in 2020, 2016 and 2019 respectively, which currently reduces the membership to thirteen countries.

FILE PHOTO: An Aramco oil tank is seen at Saudi Aramco’s Shaybah oilfield production plant in Empty Quarter, Saudi Arabia May 22, 2018. REUTERS/Ahmed Jadallah/File Photo | Photo credit: AHMED JADALLAH

In 2016, OPEC+ was created with OPEC member countries allying with ten other oil producing countries, Russia, Azerbaijan, Bahrain, Brunei, Kazakhstan, Malaysia, Mexico, Oman, South Sudan and Sudan – swelling the strength of the group to twenty-three. While OPEC’s statutes state that “any country having a significant net export of crude oil, which has interests basically similar to those of member countries may be admitted under special conditions”, the formation of the OPEC+ group was considered as a response to protect their interests amid the booming US shale industry.

The group effectively controls more than 79% of the world’s crude supplies, regulating oil prices according to its interests.

Why lower oil prices?

In its first face-to-face meeting since the start of the COVID-19 pandemic, OPEC+ cut oil production by 2 million bpd from November, saying the decision was based on “uncertainty that surrounds the world economy and the oil market”. prospects. With OPEC countries like Russia, Venezuela and Iran facing Western sanctions and Nigeria and Angola having production problems, the true cut would be 1.0 to 1.1 million bpd.

Rising oil prices could increase inflation and the cost of living for countries that buy their oil in US dollars. The United States, which is due to go to midterm elections in November, will be hit hard by this cut in production, leading to a spike in inflation – thus hitting the already low approval ratings of US President Joe Biden. .

The WE raised interest rates and called for three-phase sanctions on Russian oil to limit funds from Moscow to wage war in Ukraine. According to the G7 plan, the first set of sanctions will target Russian crude oil, while the second will focus on diesel and the third will tackle lower value products such as naphtha.

FILE PHOTO: Pipes at the landing facilities of the ‘Nord Stream 1’ gas pipeline in Lubmin, Germany, July 21, 2022. REUTERS/Annegret Hilse/File Photo | Photo credit: ANNEGRET HILSE

Facing global condemnation of its invasion of Ukraine and heavy economic sanctions, Russia has already ‘closed indefinitely’ North stream 1, an undersea gas pipeline, after leaks were found on a section of pipeline near the island of Bornholm in the Baltic Sea. This gas pipeline supplied European states with 25% of their total Russian gas imports. Russia, which supplies European Union (EU) countries with 40% of their natural gas, has been steadily cutting supplies since the EU imposed heavy economic sanctions on Moscow. While the EU claimed the pipeline had been sabotaged, Russia denied responsibility.

As oil prices soar in European countries and the United States struggles with rising inflation, OPEC+’s oil production cuts are helping Russia fight NATO. Kremlin spokesman Dmitry Peskov hailed the move as “a balanced and thoughtful way to oppose the actions of the United States. It at least compensates for the chaos caused by the Americans.”

US-Saudi Oil Relations

The oil production cut comes months after Mr Biden visited Saudi Arabia and met with Crown Prince Mohammed bin Salman, in a bid to dissuade the bloc from cutting oil production. However, despite the White House’s diplomatic efforts, Saudi Arabia has neither condemned Russia’s war on Ukraine and has now helped Moscow inflate oil prices, driving up consumer prices in the United States. United States.

Mr Biden, who steadily waned in popularity ahead of the midterm elections in November, has been repeatedly targeted by the Republican Party for his failure to cut state gas and food prices -United. For upcoming polls, Mr Biden has promised “consequences” for Saudi Arabia in retaliation for driving up oil prices. To rein in oil prices, the United States is considering releasing its shale oil reserves.

His administration said it would reassess ties with the kingdom. US-Saudi relations, which had soured since the murder of US journalist Jamal Khashoggi, soured further with Saudi Arabia’s refusal to condemn Russia and provide any energy commitments to the United States.

In this image released by the Saudi Royal Palace, Saudi Crown Prince Mohammed bin Salman, right, greets President Joe Biden with a thumbs-up after arriving at Al-Salam Palace in Jeddah, Saudi Arabia, on Friday, July 15 2022. (Bandar Aljaloud/Saudi Royal Palace via AP) | Photo credit: Bandar Aljaloud

How will this affect India?

India – which imports more than 95% of its crude oil consumption – is confident that it can ride out energy price spikes due to reduced oil production. While India and many other countries expected a million barrels per day supply cut, the 2 million bpd cut took large parts of the world by surprise.

“We are very confident that we can navigate the situation,” Union Petroleum and Natural Gas Minister Hardeep Singh Puri said, adding that it remained to be seen how it would play out. He raised the possibility of higher energy prices exacerbating the move into recession, which in turn would reduce demand for oil. However, he added that India was considering this decision very carefully.

India’s oil imports from Russia hit a record high in June as Moscow offered deep discounts on its oil under Western sanctions to boost its rouble. While Russian oil accounted for about 16% of India’s total imports in April-August, a fivefold increase from a year ago, purchases from Russia fell 2.4% in September. Currently, Saudi Arabia has become India’s second largest oil supplier, while Iraq has retained the top spot.

India’s total mineral fuels/mineral oil imports in June 2022 | Photo credit: Ministry of Commerce

India has become Russia’s second-largest oil buyer after China as others have cut back on purchases since Moscow invaded Ukraine in late February. The next OPEC+ meeting will be on December 4, after the start of the oil cuts.