Saudi Arabia Swings Toward Russia
In the short term, Western countries seeking to counter the Kingdom's swing-producer power could release additional strategic reserves and increase shale oil production. In the medium term, however, the West is left with little choice but to accelerate the shift away from fossil fuels.
CAMBRIDGE – The OPEC+ oil producers, led by Saudi Arabia and Russia, surprised markets earlier this month by deciding to cut production by two million barrels per day – roughly the equivalent of 2% of the global supply. The decision, which briefly sent Brent crude climbing toward $100 per barrel, signaled the cartel’s resolve to boost prices in the face of a faltering global recovery. That put US President Joe Biden in a precarious position ahead of next month’s midterm elections. But it also demonstrated Saudi Arabia’s growing willingness to resume its swing-producer role and highlighted its newfound alignment with Russia.
The increase in oil prices following Russia’s invasion of Ukraine, together with limited spare capacity, has made the cohesion of OPEC+ necessary and spurred its members to coordinate collective production targets more effectively. But cohesiveness alone cannot preserve the cartel’s role as global price-setter. That role depends on the Kingdom’s willingness to resume its traditional function as the market’s swing producer, which it has been reluctant to carry out in recent years.
While the OPEC+ decision threatens to place additional strain on the relationship between the United States and Saudi Arabia, the production target is mostly illusory. The new agreement sets the cartel’s November output at around 42 million barrels per day, but it already produces about 39 million barrels per day – 4.5 million below the official October target – as 15 of the group’s 23 members struggle to meet their quotas.