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OPEC+ vs. the US
Oil prices soared Monday — and continued rising Tuesday — after a group of OPEC+ members (unexpectedly) announced that they'd slash production voluntarily by more than 1 million barrels per day. It’s the crude cartel’s response to expected sluggish demand for crude triggered by the recent financial turmoil in the US and Europe as well as China’s weak economic recovery.
The lion’s share of the slash — which follows a bigger cut of 2 million bpd in October — will come from Saudi Arabia, which pledged a 500,000-bpd reduction until the end of the year, matching an earlier promise by Russia.
Why are the Saudis doing this? Officially, Riyadh says it aims to balance markets, but it clearly wants to stop the price of crude from plunging further as the global economic slowdown hurts oil demand, says Eurasia Group expert Raad Alkadiri.
Saudi Crown Prince Mohammed bin Salman has ambitious spending plans, and he wants to get ahead of the curve before prices drop too much. (Indeed, the price of benchmark Brent oil hit just $73 per barrel last month compared to over $120 in the summer of 2022.)
But there's also a US angle. The Saudis resent the Americans for dragging their feet on replenishing the US Strategic Petroleum Reserve, which the Biden administration has tapped into several times since late 2021 to bring down domestic gasoline prices from a whopping $5 a gallon to today's average $3.50.
Russia’s President Vladimir Putin, for his part, has been itching for a chance to get back at the US for leading the charge to enforce a $60 per barrel price cap on Russian oil among G-7 and EU nations. The cap is finally starting to hurt Russia's economy, although perhaps not as much as the West expected.
Japan's recent move to carve out an exemption to buy some Russian crude above the $60 limit is the first semblance of a crack in Western unity against Moscow. And the more expensive oil gets, the harder it’ll become to enforce the price cap — not to mention that US Republicans will jump at the chance to blame high gas prices on President Joe Biden.
Are the OPEC+ cuts a good or bad thing? As usual, that depends.
If you're in the US, you're probably thinking: Yikes, that’s pretty awful now that gas prices have stabilized. Even though they likely won’t reach last year’s levels, high energy costs are the last thing that Western central banks need as they fight to bring down inflation, which is extremely sensitive to wild swings in energy prices.
Yet, if you're MBS or Putin, you must keep prices above a certain level to keep your oil-dependent economy humming. We all know that the Russians will do whatever they can to push back against the $60 price cap, but Alkadiri says that "the Saudis are now showing that they are determined to keep prices up too — Washington be damned."
SVB political fallout ... not as dramatic as you think
Jon Lieber, head of Eurasia Group's coverage of political and policy developments in Washington, DC shares his perspective on US politics:
Who does Washington blame for the Silicon Valley Bank collapse?
After the largest bank failure in the US since the 2008 Financial Crisis, fears of a wider financial system failure prompted the Federal Reserve and the FDIC to take dramatic measures to contain more potential bank runs last weekend. This will have broad implications of the future of bank oversight, including capital requirements and what to do about uninsured deposits that will not be fully understood for years.
But it seems like the political consequences could likely already be over. Congressional lawmakers do not want to deal with another financial crisis, and have given federal regulators wide latitude to take whatever steps they think are necessary to backstop the financial sector. Much of these authorities were created on a bipartisan basis by Congress after the Financial Crisis in 2010, giving regulators the power to insure uninsured deposits while wiping out management and shareholders of the two failed banks, and creating a new liquidity facility for banks more generally.
And the response from Congress has largely been pretty positive. Some Republican lawmakers have even encouraged regulators to go further than they did and cover all uninsured deposits, which is probably unlikely. And there is, of course, the traditional blame game happening in Washington, with Democrats blaming a deregulatory effort that happened during the Trump administration and Republicans blaming both the management of the bank for being what they say is too woke and the economic conditions that created high inflation and rising interest rates under President Biden.
But the interesting thing here is that by the middle of this week, the Washington outrage machine had largely moved on to other issues, with conservative media focused instead on a new effort at gun control by the Biden administration and other media talking about the war in Russia and an ongoing political dispute between former President Donald Trump and current Florida Governor Ron DeSantis.
While some on both sides of the aisle will continue to criticize the Biden bailout for politically connected venture capitalists and tech pros, in the absence of further market disruptions, while there could be some longer term policy reforms to prevent these problems from happening again, nearer term, the fact that regulators saved Congress from having to pass another financial rescue like they did in 2008 is welcome news for most politicians in Washington. And this incident seems likely to sink into the swamp almost as quickly as it popped up.
Hard Numbers: AUKUS compensation, $5 gas in America, Iran-Venezuela cooperation, counting toes in Zimbabwe
600 million: Australia will cough up $600 million to compensate the French defense company it scrapped a submarine deal with in order to join AUKUS. Le sub snubstrained relations between Canberra and Paris and opened up a can of worms with Beijing.
5: Average US gasoline prices surpassed $5 a gallon for the first time on Saturday, just as peak driving season gets into full swing. This is bad news for President Joe Biden, who's struggling to ease inflation at the pump ahead of the November midterms with his own approval ratings in the tank.
20: Iran and Venezuela signed a 20-year cooperation agreement during Venezuelan President Nicolás Maduro's visit to Tehran. Details are murky, but the two oil-rich international pariahs will likely continue scratching each other's back while they remain under crippling US sanctions.
130: An internet rumor about Zimbabweans selling their toes for cash became so widespread that the deputy information minister asked Harare street vendors to debunk it by showing they all had 10 toes. What is true is that inflation has surged more than 130% since the beginning of the year in a nation with painful memories of worthless money.
Economic historian Adam Tooze on the post-pandemic global economy
If 2020 was a dry run for our next big economic disaster, how'd we do? Ian Bremmer spoke to economic historian Adam Tooze about what lessons can be learned from this dark time, as well as his new book Shutdown: How COVID Shook the World Economy.
Watch this episode of GZERO World with Ian Bremmer: How the COVID-damaged economy surprised Adam Tooze
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Making sense of our new global economy
If billionaires shooting off into space because their net worth has jumped 60 percent sounds cringeworthy to you, you're not alone. Indeed, the pandemic hasn't been kind to the 120 million people into extreme poverty. Nor to the global economy as a whole, which stands to lose $2.3 trillion by 2025 due to vaccine inequality.
Even in the US, the vaccination rate is high but poor people still lack access to education, childcare, and healthcare. Still, despite these inequalities, America's economy has rebounded quickly. But we may not be fully back in the black quite yet. Economists disagree about how long rising inflation and supply chain shortages may last, and we're a long way off from vaccinating the world's poorest populations. Also, we face the twin threats of COVID variants and reduced vaccine efficacy over time.
Watch the episode: How the COVID-damaged economy surprised Adam Tooze
Is a second great depression coming? Adam Tooze on international economic crisis
Many of us experienced the major economic impact of the Great Recession from 2008-2010. The definition of a "depression" is harder to articulate, even for economists, because the US hasn't had one since the 1930s. But as unemployment rises and lockdowns to limit the spread of the coronavirus threaten the existence of businesses here in the US and around the world, we ask the question: Is another depression a possibility, and what would that look like today?
On this episode of GZERO World, Ian Bremmer poses this question to Columbia professor, economic historian, and author Adam Tooze. The two discuss the strength of the US and global economies before and during the COVID-19 pandemic, and realistic timeframes for when the financial outlook will improve.
