Whose oil, whose security?

By Zha Daojiong

OPEC Plus announced a new target of their oil output: Reducing its quota by two million barrels per day. Implementation is set to take place in November. The oil production cut will be the first since the beginning of COVID-19 pandemic, which saw a drastic decrease in oil demand and per unit prices. Oil prices have recovered and fluctuated, along with shifts in the world's energy demand and supply dynamics over the past two years.

In response to criticism that OPEC Plus' plan to cut oil output was a rebuke to the United States and by extension serving as a gesture of support for Russia, the group said in a statement taking note that the move was necessary to stabilize the recent drop in global energy prices. Some lawmakers in U.S. Congress plan to introduce legislation in response to the cut that would require the Joe Biden administration to remove U.S. troops and missile defense systems from Saudi Arabia and United Arab Emirates.

To understand the ongoing exchange of words, it is worth noting that throughout its history, part of OPEC's operational routine is to announce alternative oil output targets: a decrease aimed at sustaining or increasing per unit sales price and an increase to hedge against reduced purchases of the commodity. Accordingly, the grouping, with association by other oil exporting countries on a voluntary basis to make it OPEC Plus, is commonly viewed to be functioning in the manner of a cartel.

The extent to which oil output targets by OPEC Plus governments get enforced is difficult to track, as factors affecting change in a member economy's actual oil production are too numerous to pinpoint its agreement as the decisive cause. After all, there exists intra-member competition for the same import market of the world.

Typically, oil importing economies adjust to announcements by OPEC Plus through a combination of measures. These include drawing from their reserves, economizing consumption and investing in alternative sources of energy. Few would count on receiving goodwill on the part of the producers or exporters.

But, the most recent announcement catches particular attention, especially in the United States, against the backdrop of a complex set of geopolitical tensions. Before its war with Ukraine, Russia sold about half of 7.85 million barrels a day of crude and refined oil to Europe.

But the war and the EU's vow to end its reliance on Russian oil and gas led to a geopolitical dilemma for Europe: Russia benefits from high world fossil energy prices, which in turn works against the effect of economic sanctions against it.

For the United States, another major oil/gas producer and exporter in the world, it has to handle the twin struggles against macroeconomic pressures leading to inflation and joining the EU in curtailing outflow of Russia oil and gas. Additionally in November 2021, the Biden administration announced its decision to release 50 million barrels of oil from the Strategic Petroleum Reserve.

In January, crude oil prices hit seven-year highs. A major cause behind the rise is the recovery of consumption by individuals, who returned to the roads as pandemic-induced restrictions were eased.

Back then, OPEC Plus producers incurred ire from the United States as they had ignored calls for an increase in oil production. As a result, the U.S. coordinated actions with other countries with sizeable reserves, such as China, India, South Korea, Japan and Britain, in an attempt to dampen prospects of an increase in trade oil/gas prices. Actualized release is hard to track. But the spirit of political solidarity is obvious.

When it comes to OPEC Plus's decision in October 2022, the Biden administration viewed itself as having an additional reason to expect positive reciprocation from Saudi Arabia, which is understood to be the most influential member of the producer group.

In mid-July, Biden traveled to the Saudi Arabian port city of Jeddah and met Saudi Arabia's Crown Prince Mohammed bin Salman. The meeting marked the ending of U.S. sanctions on the crown prince, over a matter related to the death of Washington Post columnist Jamal Khashoggi in 2018.

As such, what we are witnessing is a competition on the definition of security. The U.S. sees Saudi Arabia and by extension other OPEC Plus members as sharing the responsibility to treat their oil production policies as part of American definition for assuring conditions favorable to evolution of security in Europe. The oil exporting economies do not see themselves as acting in a geopolitical coalition for or against security events beyond their domestic economies.

For the benefit of a stable international economy, the ideal outcome is for both sides to manage their interactions with it in mind that predictable evolutionary rather than revolutionary change remains essential.

Zha Daojiong is a professor of International Political Economy in the School of International Studies and Institute of South-South Cooperation and Development, Peking University.