Washington demanded Opec and Russia to increase oil production to help bring down the surging fuel prices, which have hit the US and several developing countries.

Petroleum prices have continued to increase across the world as the United States and Opec members are wrangling over the production increases, risking more trouble for consumers in countries ranging from India, Pakistan, Japan to Germany.

Oil price shock is a setback for global growth, but it is particularly devastating for developing economies where governments don’t have funds to shield people from the consequent inflationary shock. In low-income countries, the situation could be even worse. 

“High commodity prices, if sustained, could slow growth in energy importing countries and exacerbate food insecurity in low-income countries,” said a World Bank report in October. 

“Elevated food prices combined with the recent spike in energy costs is pushing food price inflation up in several low-income countries, such as Ethiopia, Zambia, and Zimbabwe, as well as higher-income EMDEs, including Argentina and Turkey,'' the report found.

But there are no visible signs that Riyadh-led Opec and Moscow will come to terms with Washington to increase their planned production to ease oil markets across the US, Europe, Africa and South Asia. 

Most recently, even economically well-developed European countries like the UK have faced gas and oil disruptions while countries like India and China have serious difficulties in meeting their coal demands, which have all shown signs of a growing global energy crisis linked to fossil fuel shortages. 

All these happen as the world’s energy demand spikes, with governments easing pandemic measures and activating workplaces and markets. “It's a part of a pattern where rapidly recovering energy demand and supply disruptions result in a price shock,” Lauri Myllyvirta, the lead analyst at Center for Research on Energy and Clean Air, told TRT World. 

A repeat of the 1970s energy crisis? 

Myllyvirta believes that “the longer-term effect” of increases in fuel prices and supply shortages will “be akin to the oil crisis of the 1970s - accelerating efforts to shift away from fossil energy.” 

The 1970s energy crisis had some devastating effects on the world economy as the Western countries like the US, Canada, the UK and other Western European states faced enormous petroleum shortages. 

The chart shows imported crude oil refiner acquisition costs between 1968-2006 with a clear spike in the 1970s.
The chart shows imported crude oil refiner acquisition costs between 1968-2006 with a clear spike in the 1970s. (US Energy Information Administration (EIA) / Wikipedia Commons)

The energy crisis was rooted in the Middle Eastern conflicts involving Israel, Arab states and later Iran in 1979, resulting in interruptions to oil exports from big producers like Riyadh and Tehran to world markets. 

The current conundrum has also been partly rooted in political conflicts between Washington and Moscow. A significant portion of the US and European political class believes that Russia has purposely decreased gas supplies to Western Europe to increase prices. 

The Biden administration also has serious problems with Riyadh under the de facto leadership of Crown Prince Mohammed Bin Salman, who has been accused of killing Jamal Khashoggi, a Saudi dissident journalist, in the kingdom’s Istanbul consulate in 2018. 

Blame game

Increasing fuel prices and growing energy crisis triggered accusations from the Biden administration leveled toward Saudi Arabia and Russia. In the US, oil prices have increased 60 percent in the past year as global prices have seen their highest levels in the last seven years. 

“Opec+ seems unwilling to use the capacity and power it has now at this critical moment of global recovery for countries around the world. Our view is that the global recovery should not be imperilled by a mismatch between supply and demand,” said a spokesperson for Biden’s National Security Council. 

But Riyadh believes that Opec is acting in a “responsible” manner by increasing oil output by 400,000 barrels a day, which is too low for the US to meet increasing global demand. Saudi Energy Minister Abdulaziz bin Salman, the half brother of MBS, appeared to bring together a large coalition of oil producing countries from Mexico to the UAE to oppose US demands. 

Russia is on the same page with Opec. While the US and its allies accuse Moscow of not boosting oil production, Russian Energy Minister Alexander Novak blamed Covid-19 insecurities for current output levels.  

Opec+ sources also advised Washington, the largest oil producer of the world, to increase production if the US really believes that more energy is needed to stabilise the global economy. 

While a top American energy official previously suggested that the US has “tools” like releasing its strategic oil reserves to diminish petroleum prices, Riyadh and Moscow do not think Washington’s shale industry can quickly increase output. 

Salman also cited that not only oil prices but also prices of other fossil fuels like gas and coal have also significantly increased, claiming that there is a widespread energy problem related to other variables. 

India and China have recently reported serious coal shortages due to rising prices and decreasing mining activities. “The increase in China's coal and gas prices and imports is one of the key drivers of the global fossil fuel shortage,” according to Myllyvirta.  

Source: TRT World