The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site.

All material subject to strictly enforced copyright laws. © 2021 Euromoney, a part of the Euromoney Institutional Investor PLC.
Opinion

Opec cut amounts to a tax on world consumption

The decision of the Organization of Petroleum Exporting Countries to cut production means that oil prices are set to stay high. This will keep Europe's consumers spending less and will dim prospects for eurozone recovery.

Why is Opec cutting production? Saudi Arabia is the swing producer in the cartel. The Saudis are worried that the US is considering ditching them as allies in the Middle East. By cutting production, the Saudis are telling the US that it needs them just as much as the Saudis need the Americans. Significantly, the Russians have backed the Opec cut for the same reason.

Saudi-Russian collusion Until the Opec meeting, the consensus was that the crude oil price would fall to below $20 a barrel over the next year. Energy traders thought Saudi Arabia had no cards to play, as Iraqi oil was set to come on stream and stocks were recovering. However, early in September, Saudi Arabia's crown prince Abdullah visited Russian president Vladimir Putin. Russia, it transpires, agreed with the Saudis that Opec production quotas would be cut by 3.5%.

The official reason given for the cut was the likely rapid return of Iraqi oil production. But the real reason is political.

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.

SUBSCRIBE ONLINE TODAY

Unlimited access to Euromoney.com and Asiamoney.com

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually

FREE 7 DAY TRIAL

Unlimited access to Euromoney.com and Asiamoney.com, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors

LOGIN NOW

Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree