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While the Fed is raising rates to try to stop inflation, OPEC is playing spoiled sport.
OPEC chooses its side
To everyone’s surprise, OPEC has just announced that it is reducing its production. 1.6 million barrels per day. It is Saudi Arabia, Russia, United Arab Emirates, Iraq, Kuwait, Oman and Algeria. Moscow and Riyadh support 2/3 of the reduction.
This reduction comes in addition to the 2 million barrels decided in October 2022. The Wall Street Journal also reveals that the Crown Prince of Saudi Arabia no longer intends to. “to satisfy the United States”.
So far the White House has refrained from making a scene as it was in October. But the initiative was still described as “Not recommended”…
This threat should not have much effect. Especially since the kingdom has just joined the SCO (Shanghai Cooperation Organization) as an observer. Not to mention the recent blow to the petrodollar by authorizing China to pay for its oil in yuan.
The collapse of US influence over Saudi Arabia and the Kingdom’s new alliances with China and Iran confirm that the US strategy has failed. As Robert F. Kennedy Jr. said. on Twitter:
“In the last ten years, our country has spent trillions destroying roads, ports, bridges and airports. China spent the same, but the same construction in developing countries. The war in Ukraine is the final downfall of the short-lived “American Age” of the neoconservatives. Neocon projects in Iraq and Ukraine have cost $8.1 trillion, reduced our middle class, made the military potential and moral authority of the United States a laughing stock. They also pushed China and Russia to form an invisible alliance and destroyed the dollar as an international currency. […]. »
Saudi Arabia’s surprise decision is aimed at supporting Russia, which is already busy keeping NATO at bay. Russia’s sacrifice offers the rest of the world a chance to free themselves from the dollar and the permanent tyranny of the Pax Americana.
Saudi Arabia has little to lose in terms of market share anyway. With Russia under sanctions, the shale oil peak in the United States and the weakness of investments by international oil companies, there is no competitor in sight.
Furthermore, even if the price of a barrel of Brent has risen to $85, we are at a historically normal level. The average price per barrel for this century (corrected for inflation) is 74 dollars per barrel. Goldman Sachs sees $95 even by the end of the year. And $100 by the end of 2024…
Since oil cannot be replaced for the functioning of the world economy, this will mechanically lead to a new surge in inflation. And possibly further interest rate hikes from the Fed.
So a repeat of the 2008 crisis is in the making. At the time, the rise in oil prices prompted central bankers to raise rates. Everyone knows what will happen next. The markets crashed and the US government bailed out the banks by borrowing newly printed money from the Fed.
The world escaped hyperinflation thanks to one thing: US shale oil. It was the doubling of US oil production (from 6 to 12 million bpd) that made it possible to start again. And now?
The price of a barrel is currently the same as it was in 2007, shortly before OPEC cut its production, which triggered the “subprime” crisis two weeks later (which was actually an oil crisis). 2023, Do it again?
Russia at India’s bedside
There is little chance that Russia and Saudi Arabia will take the price of a barrel above $100 to trigger a major crisis in the West.
Unfortunately, the rest of the world will not be spared. Many neutral countries could then release Russia. And especially India which, with China, is a vital ally for Russia. The latter was recently one of his top five trading partners.
Russian Energy Minister Alexander Novak says oil sales to India have increased 22 times. In March, India was the largest buyer of Russian crude oil. Deliveries to India are expected to account for more than 50% of all seaborne exports of Urals oil this month. China comes second.
These developments are important since an explosion in the price of a barrel could mean political unrest in India. However, without the support of Ghandi’s country, the game would be very complicated for Vladimir Putin. So his precautions.
Indeed, OPEC’s decision came three days after Rosneft CEO Igor Sechin’s visit to Delhi. Details were not disclosed. But it was certainly to protect the Indian subcontinent from the expected volatility in the world oil market.
The presence of Minister Ola Puri represents a high-level political decision. Especially since the head of the security services of the Russian Federation Nikolai Patrushev was also on the trip to meet Prime Minister Modi.
Simply put, Russia has erected a firewall around India to insulate it from crude volatility while the United States crosses swords with Saudi Arabia.
Which means that the sling against the dollar will continue even more. For this reason, do not miss our next paper explaining why Bitcoin is inevitable to avoid a world war.
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Journalist reporting on the Bitcoin revolution. My papers deal with bitcoin through geopolitical, economic and libertarian prisms.
The views and opinions expressed in this article are the sole responsibility of the author, and should not be considered investment advice. Do your own research before making any investment decision.