Foto: vantuz/ depositphotos.com

This is not the first time – and it certainly won’t be the last – that the global economy has suffered a blow that threatens its recovery, the culprit being the cartel of major crude oil exporters. Earlier this month, OPEC+ members announced that they would cut global production by an additional 1.16 million barrels per day by the end of the year. Led by Saudi Arabia and Russia, OPEC+, the organization of the 23 oil-exporting countries that together produce more than 40% of the world’s oil, meets regularly to determine how much crude oil to sell on the global market, thereby influencing prices.

The recently announced cuts are in addition to Russia’s existing plans to cut production by at least 500,000 barrels per day until the end of the year. Despite the sanctions, Moscow has managed to redirect crude oil shipments to Asia at affordable prices, thus allowing Russia to keep playing an important role in global oil markets as the world’s third-largest producer after the U.S. and Saudi Arabia.

The International Energy Agency (IEA) recently warned that the unexpected cut in oil production by OPEC+ is aggravating the already existing supply deficit. In its latest monthly oil market report, the IEA points out that the so-called “cautionary measure” of the major oil-producing companies’ alliance “does not bode well for economic recovery and growth.” According to this agency, the global energy landscape has changed dramatically over the past year since Russia’s invasion of Ukraine.

The entire world was faced with the increase in prices that hit consumers hard but has also highlighted two interrelated issues: on the one hand, the geopolitical context with energy security at its core, and on the other, price volatility and the world’s dependence on fossil fuel consumption.

By cutting production, OPEC+ reduces the world’s supply of crude oil, thus increasing the price of oil. When oil supply is limited and demand remains constant or even increases, prices soar. High oil prices hurt the economy by increasing costs for businesses and households. As oil price increases, so does the price of energy and all the economic activities that depend on it, leading to higher prices for goods and services, lower business profits, and reduced purchasing power for consumers.

To recover, the world economy needs cheap crude oil, that is, low energy costs, which would result in a significant slowdown in the rate of price growth. To stabilize the economy, today’s world—a world of hydrocarbons—continues to require a lot of oil. A lot and cheap, or rather “a lot, thus cheap”. But this year we will probably continue to have less oil, thus expensive.

Daniel Apostol

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