Recently, OPEC+, a group consisting of 23 countries that essentially determine the world’s oil output, decided that they would cut their production of oil. However, this cut isn’t miniscule in any way; in fact OPEC plans on reducing their oil production by a near two million barrels per day. The group claimed that the “uncertainty that surrounds the global economy and oil market outlooks” was the sole reason for their decision, but many critics argue otherwise.
Because of Russia’s involvement in OPEC, it is speculated that the profits that come from this increase in demand of oil, will be directly used to fuel Russia’s attempted takeover of Ukraine. The Biden administration has obviously condemned this cut in oil production due to their support for Ukraine, and have even gone as far to threaten to halt arm sales, remove missile systems, and remove all American troops from Saudi Arabia.
Even though the support for Ukraine may have been a factor for the United States condemning the cut in production, it is obvious that the Biden administration was looking after the U.S economy as a whole with this decision. As we saw in February of this year during the early stages of Russia’s invasion, the rise in oil prices and inflation are directly related. To keep it brief, because of the vast amount of products that depend on oil for their production, when the price of oil increases, the price of these goods also increases. The purchasing power of the dollar would be unable to keep up with this increase which is why the ultimate result would be even higher inflation rates.
As most already know, the current inflation on the dollar is already a subject of massive concern. With the many massive interest rate hikes that have occurred over the past six months, little effectiveness seems to be shown. 8.3% inflation was a number that caused the markets to panic and go into a massive selloff around July-August, and in the most recent report in September, the number only dropped to 8.2%.
The rise of oil prices directly relating to inflation, and the vast toll inflation has taken this past year on the U.S economy were most likely the true reason for the Biden administration condemning OPEC+’s actions. Yes, the support for Ukraine could have played a small role in this decision, but threatening to terminate relations on many levels with Saudi Arabia for the sole reason of Ukraine does not seem to make sense.
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