Saudi Arabia, whose relationship with the United States has taken a nosedive during President Joe Biden’s tenure, announced on Sunday it would lead the members of the Organization of the Petroleum Exporting Countries (OPEC), including Russia, to cut over one million barrels of output a day starting next month, which could cause higher U.S. inflation.
Saudi Arabia also stated it would cut production by another 500,000 barrels a day starting in May. Oil prices soared 7.5% at the week’s open after the Saudi announcement. Kevin Book, managing director of Clearview Energy Partners, told CBS News the cuts could cause U.S. gasoline prices to rise roughly 26 cents per gallon.
The move on Sunday follows OPEC’s decision last October to reduce production by two million barrels a day. “There’s going to be some consequences for what they’ve done with Russia,” Biden threatened in October. “I’m not going to get into what I’d consider and what I have in mind. But there will be — there will be consequences.”
“President Biden said he would make the kingdom of Saudi Arabia a pariah state. That was an enormous mistake,” former Secretary of State Mike Pompeo said. “But let’s look at the facts. They are an important security partner for the United States. There’s only one country in that whole region that wants to threaten the United States of America and Israel and wipe us from the face of the earth. That’s the leadership in Iran and the kingdom of Saudi Arabia’s been an important partner in helping protect us from that threat.”
Unlike the warm relations between the U.S. and Saudi Arabia during the Trump administration, Biden’s actions, including calling Saudi Arabia a “pariah” in 2019 when he was running for president, have alienated the Saudis to the point that they have tried effecting a rapprochement with Iran, their greatest enemy, brokered by China. Saudi Arabia cut ties with Iran in 2016.
“Given the preventive nature of OPEC decisions, there is clearly something OPEC knows about demand trends and inventories that we have yet to discover fully in overall supply and demand balances,” Christyan Malek, global head of energy strategy at JP Morgan, told The Wall Street Journal.
Ole Hansen, an oil analyst at Denmark’s Saxo Bank, opined that the Saudi decision was indicative of their worries that interest rates in the U.S. will increase.