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Self-Interest, Not Benevolence

Julian Silk's picture
Adjunct Professor
  • Member since 2010
  • 236 items added with 6,878 views
  • Oct 6, 2022

One of the lead articles today is that Saudi Arabia is arranging for OPEC to cut back on oil production.  A typical example of the news on this, which is less than flattering to President Joe Biden, is at

This will play back into natural gas prices, although not with the clockwork it would have before shale gas, and will in turn play back into electricity pricing. 

It is important to recognize that there is not much that President Biden can meaningfully do if the pressure is to be kept on the regime of Vladimir Putin, and the general trend of the Democratic policies are to be maintained.  U.S. oil company capital expenditures have significantly increased, but so have costs, as in

The oil companies have to have some reserve in case of a recession, which is being forecast by a number of sources, some not totally self-interested or politically biased, including Donald Kohn, as in

Some sort of price guarantee for the oil producers might help.  But the most likely outcome is that this oil restriction will slow growth, and increase inflation, and increase the odds of a recession in 2023 or 2024, as the Federal Reserve and other central banks raise interest rates to fight the continuing inflation. 

The Saudis have gone through this before, of course, and it is an issue of "Be merry now, for tomorrow we may die".  You want to look at the graph on p. 5 of

and look how oil revenues as a percentage of GDP collapsed in the early 1980s, reaching bottom in 1985.  The Saudis are not in this to help President Biden and the Democrats; they are in this to get money now, before things turn to the worse.

Mark Silverstone's picture
Mark Silverstone on Oct 9, 2022

Who would expect MBS to put aside the «pariah» pledge by Biden? The President was poorly advised to make the «fist bump» trip. He looked weak and desperate. Of course it didn’t work.

It is awful to contemplate, but the world must quickly become energy independent of OPEC and Russia. It can certainly be done. It is not coincidental that the UK, Norway, Australia and US have accelerated oil and gas field development in just the last month. The transition to renewables must play a quickly increasing role in the effort. The IRA is a good start, but not nearly adequate.

Julian Silk's picture
Julian Silk on Oct 9, 2022

That's a reasonable response. My take is that it was a nice gesture, but absolutely nothing should have been expected from it. President Biden held out neither carrot nor stick.

Julian Silk's picture
Thank Julian for the Post!
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