Alex Brummer: The shocking decision by OPEC countries to cut production is proof that we must strengthen energy security in the UK
Just as we hoped that the worst of the energy price hike caused by Russia’s war on Ukraine would end, a new axis of evil is rearing its head.
Saudi Arabia and Russia, with tacit support from China, decided it was time to put new pressure on Western economies.
The sudden decision by Saudi Arabia and other OPEC+ countries to cut oil production by more than 1 million barrels per day has sent the global market price of crude oil up by five percent.
It’s a heavy blow to businesses and consumers, with Goldman Sachs among others predicting the price will reach $110 a barrel by the end of the year from $85 now.
Higher crude oil prices mean higher costs at the pump. And with gas prices taking the lead from oil, it could also mean a tough fall and winter, making it even harder for the government and the Bank of England to win the battle against inflation.
Just as we hoped that the worst of the energy price hikes caused by Russia’s war on Ukraine would end, a new axis of evil is rearing its head
Rishi Sunak has pledged to halve inflation by the end of the year. But food prices remain stubbornly high and the recent energy shock will make it difficult to achieve the goal.
The very sad thing is that the Saudi-led move to cut production comes when gasoline and gas prices are deteriorating.
It is also a slap in the face for President Biden, who traveled to Riyadh last year to meet with the country’s de facto leader, Mohammed bin Salman. He was believed to have secured pledges to keep the oil flowing amid concerns about a global recession.
Instead, by supporting high oil prices, Saudi Arabia has joined forces with Vladimir Putin. Not only is it helping itself to additional money from the West, it is giving revenue to Russia, which has shifted much of its energy production to China and India.
The decision of the OPEC+ countries to advance their own interests at the expense of the West underscores the UK’s need to boost its energy security by awarding new licenses for oil and gas production.
We can’t wait for green energy to come into play. Norwegian oil exploration company Equinor is currently looking to develop the massive Rosebank field north of Shetland. But Britain is under intense pressure from environmentalists to stop producing new fossil fuels.
Whatever happens in the longer term, the concern should be that a new wave of higher energy prices will quickly translate into stronger headline inflation – which in turn will require another round of interest rate hikes.