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The new ‘OPEC DEAL’ approved in Helsinki: the United States, Russia and Saudi Arabia

Crude oil is a product that has always given rise to intense speculation in which respect it is second only to cryptocurrencies. This commodity yielded lower and lower revenues, which was caused by its abundant supply which occurred after the international sanctions imposed on Iran had been lifted: in one and a half years the price of the barrel dropped from 110 USD in June 2014 to 30 USD in January 2016.

It is not only too low but also too high value of oil that is problematic for governments, and this is because citizens may show their dissatisfaction with expensive fuel at the ballot box (in the United States senate by-elections are scheduled for November), since more expensive oil means more expensive transport, which sooner or later entails a rise in prices of virtually all other goods.1)Rising gas prices are taking a big chunk out of people’s disposable income, Business Insider 2018-07-04.

In order to avoid violent price fluctuations, important oil extractors enter into contracts regulating its supply. Such an agreement took place during the Helsinki summit (July 16) between the presidents of the United States and Russia. Together with Saudi Arabia, which has already reached an agreement with Moscow on this matter2)Saudi Arabia: OPEC and Russia to pump more oil ‘in the near future, CNN 2018-05-25.they form a new OPEC, an organization whose collective oil production makes up 30% of global demand, a powerful tool in the hands of Trump, Putin and Mohamed bin Salman, by means of which they could:

  1. shape the supply and thus the oil prices;
  2. limit the influence of other producers and other organizations extracting oil (such as OPEC, OAPEC);
  3. put pressure on importers, in this case especially on the European Union, which is the world’s largest recipient of oil, and whose relations with Moscow and Washington have not been among the best recently.3)Trump calls European Union a ‘foe’ – ahead of Russia and China, The Guradian 2018-07-15.

These are the goals shared by the three states. In addition, each of the contracting parties will be able to pursue its own policies, using this economic leverage. We expect that:

  • Washington will gain a stronger position in the trade war with China, the second largest recipient of oil;
  • the Kremlin might demand the lifting of EU sanctions, and
  • Riyadh will be able to exert more pressure on Tehran.

References   [ + ]

1. Rising gas prices are taking a big chunk out of people’s disposable income, Business Insider 2018-07-04.
2. Saudi Arabia: OPEC and Russia to pump more oil ‘in the near future, CNN 2018-05-25.
3. Trump calls European Union a ‘foe’ – ahead of Russia and China, The Guradian 2018-07-15.

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