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Abu Dhabi CNN —
Saudi Arabia’s energy minister once famously said that the kingdom “derives pleasure from keeping everyone on their toes.”
That is likely how White House officials and Democratic politicians were left feeling when the kingdom led OPEC to announce a mammoth oil production cut this week, causing fears of even higher inflation just five weeks ahead of the midterm elections.
On Wednesday, OPEC+, the oil cartel led by Saudi Arabia and Russia, agreed to slash production by 2 million barrels per day, twice as much as analysts had predicted, in the biggest cut since the Covid-19 pandemic. An intense pressure campaign by the US to dissuade its Arab allies from the cut ahead of the decision seemingly fell on deaf ears. Russia is already pumping below its OPEC+ ceiling, and the bulk of the cuts will be made by Gulf producers.
Saudi officials insist that the kingdom must put its own economic interests ahead of domestic US political considerations.
“We are concerned first and foremost with the interests of the Kingdom of Saudi Arabia,” Energy Minister Prince Abdulaziz bin Salman al-Saud said in an interview with Saudi TV on Wednesday, adding that the government has “an interest in being part of the growth of the global economy.”
Prince Abdulaziz said the cartel needed to be proactive as central banks in the West moved to tackle inflation with higher interest rates, a move that could raise prospects of a global recession, which could in turn reduce demand for oil and drive its price down.
“This cut seems to be a proactive measure to hopefully avoid a price crash requiring a sudden cut as the US Federal Reserve continues to hike interest rates,” said Ellen Wald, a nonresident senior fellow at the Atlantic Council think tank in Washington DC.
Because of its heavy dependence on oil revenues, the Saudi economy has a history of falling victim to boom and bust cycles in the oil market, where high prices bring in a flow of cash followed by downturns. Experts say the kingdom is trying to protect itself from such an eventuality.
“Saudi Arabia is looking to head off a repeat of 2008 when the market crash sent the global economy into a recession and oil prices suddenly plummeted, requiring emergency action by OPEC,” said Wald.
Analysts also say Saudi Arabia cannot afford to let oil prices go below a certain level for budgetary reasons.
This year, the kingdom is expected to register its first budget surplus after eight years of deficits caused by low oil prices and the Covid-19 pandemic.
For its budget to break even, global oil prices must be at around $79 a barrel, according to the International Monetary Fund. Last month, prices dropped to $85 per barrel from a high of $139 just seven months ago. That was a warning sign for Saudi Arabia and other oil exporters, who depend on oil for a majority of their revenue.
“But the Saudis do not want to just balance the books, they want to ensure a steady stream of surpluses,” said Robert Mogielnicki, a senior scholar at the Arab Gulf States Institute in Washington, adding that the kingdom “would like to see prices moving closer to the high $90s.”
Saudi Arabia has the lowest oil extraction cost in the world, at around $3 per barrel. That means the vast majority of the revenue earned from each barrel goes into its coffers. And those funds are needed to finance everything from futuristic trillion-dollar cities in the desert to a sizeable government wage bill, despite the introduction of new taxes in recent years and attempts to diversify the economy.
“The high price [needed to balance the budget] is because of the large spending on government services, infrastructure investment, public sector, etc,” said Omar Al-Ubaydli, director of research at the Bahrain-based Derasat think tank, adding that “conventional tax instruments are largely absent, especially personal income tax.”
“It is trying to have a diverse and stable revenue source for the government because unstable government finances are highly disruptive to the economy,” added Al-Ubaydli.
Still, the response from the Democrats has been fierce, with politicians framing Saudi Arabia’s move as a hostile act against the US that benefits Russia by filling its coffers with petrodollars as it wages war on Ukraine.
“What Saudi Arabia did to help Putin continue to wage his despicable, vicious war against Ukraine will long be remembered by Americans,” tweeted Senate Majority Leader Chuck Schumer, a Democrat, on Friday.
The Biden administration was swift in its reaction. White House press secretary Karine Jean-Pierre put out a statement on Wednesday saying that it “is clear OPEC+ is aligning with Russia.” On Thursday, Secretary of State Antony Blinken said the US is “reviewing a number of responses” to Saudi Arabia’s move, adding that the White House is “consulting closely with Congress.” Some Saudis are describing the reaction as “hysterical.”
The Biden administration may now lend support to the bipartisan NOPEC bill that could expose members of OPEC+ to antitrust lawsuits by revoking immunity from the cartel’s national oil companies.
“The response coming from policy circles in Washington is exaggerated,” said Mohammed Alyahya, senior fellow at the Hudson Institute in Washington DC. “Saudi Arabia’s is primarily interested in ensuring that OPEC+ remains apolitical and focused on technical matters.”
A report published Friday by Iran’s forensic medical organization said that Mahsa Amini’s death was caused by an underlying medical condition, rather than head or other vital organ injuries.
Amini, a 22-year-old Iranian woman detained by morality police for violating the conservative dress code, died on September 13, sparking protests across the country. The report said she had a medical condition after an operation on a brain tumor at the age of 8, Iran’s semi-official Tasnim news agency reported.
The report also added that according to the hospital medical documents, “the mentioned death was not caused by hitting the head or the vital organs and elements of the body,” Tasnim reported.
Here’s the latest on this developing story:
Israel to reject Lebanese amendments to maritime agreement
Hopes of ending a dispute between Israel and Lebanon over a potentially gas-rich area of the Mediterranean dimmed Thursday, as a senior Israeli official told reporters Israel will reject amendments the Lebanese are making to a maritime border agreement being negotiated by the United States. The official asked not to be named due to the sensitivity of the negotiations.
Lebanon fears cholera outbreak
Lebanon has recorded its first case of cholera since 1993, likely the result of a serious outbreak in neighboring Syria crossing the porous border between the countries, Reuters cited caretaker Health Minister Firas Abiad as saying on Thursday. He said the case was recorded on October 5 in the rural northern Lebanese region of Akkar and that the patient, a Syrian national, was receiving treatment and in a stable condition.
Qatari government staff to WFH during World Cup
Qatar has ordered most government employees to work from home during next month’s soccer World Cup while schools will have reduced hours in the two-week runup to the tournament, before shutting altogether as the country prepares for an influx of visitors, Reuters reported.
Lebanese people, faced with their worst economic crisis in 150 years, are using their imagination to picture how life would be if they had money. And some have found humor in it.
The hashtag #If_I_had_money was Lebanon’s top trend on Twitter on Thursday, with people sharing ideas for what they would do in more prosperous times.
Most used the hashtag to take a comedic stab at the country’s current financial crisis.
“Of course I won’t stay in Lebanon,” one user tweeted. Another felt it was so farfetched that he wrote, “If you live in Lebanon then forget it, you won’t have money.”
Lebanon is facing an unprecedented financial meltdown. Its currency has plunged 90% since 2019, wiping out the savings of millions, and it has one of the world’s highest rates of inflation, at 162% as of August. Adding to that, local banks have severely restricted withdrawals, leaving citizens with limited access to their funds.
“If I had money, the government would steal it,” one user tweeted, while another said they would deposit the money in a bank so they can hold it up later.
The reference is to the recent wave of bank hold-ups that forced all institutions to shut down for 10 days.
On September 16, Lebanon saw five hold-ups in five separate banks on the same day as depositors sought to take back their own money by force.
“If you’re living in Lebanon, forget about it – you won’t have any money,” tweeted one user. Another said if he had money, he wouldn’t be in Lebanon.
The Association of Banks in Lebanon (ABL) warned that the country’s currency could one day collapse to the point where money will be weighed instead of counted.