Oil is addictive.
At least for addicts like me. While I took some time off over the last couple of weeks, the oil and energy world passed through major upheavals, with long-term geopolitical consequences.
On Sept. 27, three offshore lines of the Nord Stream gas pipeline system on the bed of the Baltic Sea sustained “unprecedented” damage. Powerful explosions damaged two underwater natural gas pipelines – Nord Stream 1 and 2 – that run between Russia and Germany. Nord Stream 1 is the largest single supply route for Russian gas to Europe.
Accusations flew back and forth as to what happened, from both sides. NATO pointed the finger at Russia, implying that the damage was intentional to squeeze the supply of gas to Europe.
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But not everyone seemed to agree.
Russian Foreign Ministry spokesperson Maria Zakharova claimed the attacks occurred in “countries that are completely controlled by the U.S. intelligence services.” Fox News television personality Tucker Carlson even implied that the U.S. had a role in the explosions. “If you are Vladimir Putin, you would have to be a suicidal moron to blow up your own energy pipeline,” Carlson argued. “That’s the one thing you would never do.”
While all this was going on, with gas prices surging and the mid-term U.S. elections were just weeks away, the Organization of Petroleum Exporting Countries and its allies in the extended OPEC+ made a bombshell announcement. They opted to cut their output by two million barrels per day (bpd).
The decision, made, according to OPEC+, for technical reasons, came despite the push from the major consuming countries, including the U.S., to increase output. But with a recession and signs of a demand collapse imminent, OPEC+ maintained that it could not afford a market collapse.
The Wall Street Journal reported that to appease OPEC producers, including the kingpin, Saudi Arabia, and avoid an increase in the price of oil, Washington even went so far as to assure Riyadh it would buy oil from Saudi Arabia to fill up its Strategic Petroleum Reserves at $75 a barrel. OPEC didn’t bite.
To some extent, markets now seem to underline that OPEC’s concerns were correct. Despite the announcement to cut output and an immediate uptick in oil prices, a market correction is now very much visible.
According to Bloomberg, oil posted a weekly loss last week as inflation-fighting measures and muted Chinese demand soured the market’s outlook, blunting some of the sting from OPEC’s upcoming supply curtailments. Underlined by slowdown concerns, this was the longest losing run experienced by the markets since 2021.
But OPEC+’s decision to reduce oil production in advance of the mid-term elections has annoyed U.S. President Joe Biden and Democrats in Congress. The Wall Street Journal reported that Biden and the Democrats are threatening “consequences,” with Biden again threatening to “rethink” the U.S.-Saudi relationship. “I am in the process, when the House and Senate get back, they’re going to have to – there’s going to be some consequences for what they’ve done with Russia,” he told CNN.
Will OPEC+’s decision lead to a dismantling of the relationship between the two long-time allies? While that’s a difficult call to make, some feel that, despite all the pre-election heat, Riyadh and Washington need each other. Neither can afford a complete divorce, at this moment.
Ultimately – or after the mid-terms – things would cool down.
Toronto-based Rashid Husain Syed is a respected energy and political analyst. The Middle East is his area of focus. As well as writing for major local and global newspapers, Rashid is also a regular speaker at major international conferences. He has provided his perspective on global energy issues to the Department of Energy in Washington and the International Energy Agency in Paris.
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