EDITORIAL: It’s a bit rich of the American-European bloc to fume at Russia and its allies for protecting their interests, especially since the latter’s actions are largely in response to the former’s provocations.
The sudden decision of OPEC+ — an alliance of the old cartel with Russia and some of its friends — to cut oil production by 1.16 million barrels per day, on top of the 2 million barrels per day announced last October, is the second major development coming out of the Middle East in as many months that caught Washington and its cheap energy-dependent friends completely unawares; even though in the scramble to save face it always falls back to the old line that it was kept informed, just like it said it was in the loop after China shocked it with its outreach and got Iran and Saudi Arabia to bury the hatchet.
The oil production cut, announced just one day before the cartel’s foreign ministers were due to meet officially, shows once again that Riyadh has been party to the kind of behind-the-scene machinations that it tended to avoid till very recently, especially when American interests were involved.
But now it is amply clear that in the new, freshly divided world between America and its allies and Russia and China and their allies, Saudi Arabia is not as firmly anchored in the American camp as before. Rather, it is moving in sync with the Russians, especially trading oil out of the dollar, on a number of very crucial and sensitive points.
Surely, the back-to-back production cuts would not have come in this way if American and European sanctions on Russian commodity sales and the price cap on its gas had not been employed – to teach Moscow a lesson for daring to interfere in Ukraine’s quest for Nato membership.
Now nobody knows who to trust about end-of-year oil price forecast. Citibank, for example, is simply dismissing $100 per barrel concerns as “very unlikely”, but Goldman Sachs seems very certain that the $100-barrier will be broken by year end.
Either way, dovish expectations about Fed policy sparked by the collapse of two big tech sector banks in the US is already old news, with pundits pricing in yet another round of unexpected inflation and more aggressive rate cuts before the hawkish cycle is over.
Sadly, this scenario typifies how superpower rivalry wreaks havoc in financial markets and makes ordinary countries with no stake in the big game, like Pakistan, pay for it. Geopolitical tension, more than demand-supply dynamics, is at the heart of the new bull market that has just been triggered in oil.
Ansssd heavy importers deep in the Global South, just like Pakistan, will have their annual budgets decimated because of it. Over here, such things cause not only a lot of economic/financial anxiety, but they also overwhelm mainstream political discourse.
Now, as the oil price hike makes its way to petrol pumps all over the country, you can be sure that a super-charged and irritated opposition will hold the sitting government’s “incompetence” squarely responsible for it.
Financial markets will remain hostage to such uncertainties till the war in Ukraine rolls on. With both sides having gone off script – Russia’s military weakness and America’s imminent recession – there’s no telling when this uncertainty will end as the two camps desperately try to out-maneuver each other.
Even oil’s current jump is not backed by fundamentals. It is just the result of retaliatory measures, showing that neither side is willing to blink just yet.
That explains even more nervousness in the market, built around the fact that the OPEC+ shock might not be the last surprise stemming from this conflict.
Copyright Business Recorder, 2023
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