Russia’s emergence as the largest supplier of crude oil to India drives another wedge between the Organisation of the Petroleum-Exporting Countries (Opec) and rich Western consumers who see the cartel acting in support of Moscow’s aggression in Ukraine.
Opec-Plus, which includes Russia, agreed last month to cut production by roughly the amount of crude oil China and India are buying from Russia. The global supply cutback is likely to be half the agreed upon figure given the state of investments in oil production since the pandemic and going into a widespread economic slowdown. The Opec-Plus decision follows in the footsteps of the West imposing price caps on Russian oil to squeeze its war financing.
Opec leader Saudi Arabia defends its position, as designed to ensure a stable oil market that is being made vulnerable by the US, its long-term strategic ally, releasing strategic reserves and asking domestic energy companies to ramp up production. There is also suspicion that the price cap on Russian oil will have knock-on effects on Opec’s exports as major economies head into recession brought on by central bank action. Deeper fissures in an eight-decade relationship between the US and Saudi Arabia have surfaced over climate action commitments and political pressure to move away from fossil fuel.
The West needs Opec to weaponise oil, a global resource that should ideally be kept out of conflict resolution. By agreeing to production cuts, Opec is accepting the discounts in Russian crude oil supply to buyers like China and India, while Western consumers are pulling down global demand. And, by extending coordinated production with Russia by a year, Opec is admitting its need for assistance in stabilising oil prices. Fractured energy markets will make it harder for a seller’s cartel to maintain prices, particularly when crude oil is at almost twice its historic levels. If buyers like India work out feasible purchase arrangements to bypass financial sanctions, the realignment of the energy market could solidify.