The World That Was

Adrian Olivier,

Sunday 2 April – Sunday 9 April

Last Sunday OPEC+ (the thirteen OPEC members and 10 other countries, the most important of which is Russia) announced a surprise oil production cut of 1.15 million barrels a day beginning in May. In addition, Russia announced it would extend its voluntary cut – in retaliation for Western price caps on Russian oil – from February of 500,000 barrels a day until the end of the year – an OPEC+ cut totaling 1.6 million barrels a day. The Oil prices responded swiftly at market open on Monday, rising as much as 8 percent before lowering to 6 percent for the day – the biggest price rises in a year. These cuts follow October’s cuts of 2 million barrels which greatly angered the Biden Administration dealing with rising inflation – Biden vowed then that there would be “consequences” for Saudi Arabia, but the administration has yet to follow through.

“Aside from the impact on the physical oil market, it is hard not to think that there is some geopolitical posturing embedded in these voluntary cuts…It demonstrates the group’s support for Russia and flies in the face of the Biden administration’s efforts to lower oil prices.”

Saudi Arabia had the largest cut of 500,000 barrels – less than 5% of the country’s average 11.5 million barrels per day in 2022, followed by Iraq by 211,000 barrels per day, the United Arab Emirates by 144,000, Kuwait by 128,000, Kazakhstan by 78,000, Algeria by 48,000 and Oman by 40,000. 

The Saudis are seemingly determined to keep oil prices high enough to fund Crown Prince Mohammed bin Salman’s ambitious projects – including the construction of the NEOM line city. These announced projects have an astonishing price tag, NEOM alone will cost $500 billion, while the whole Vision 2030 plan will see up to $3 trillion spent. Last year Aramco – the Saudi national oil company – had record profits of $161 billion in 2022, up from 2021’s $110 billion. Aramco has announced its intention to boost production to 13 million barrels a day by 2027. Despite the October cut, crude prices have come down over the past year as worries about a recession have offset supply issues stemming from Russia’s invasion of Ukraine. Russia too would like to see higher oil prices as it would boost its coffers and aid in its war against Ukraine, while worsening inflation and hurting American customers at the gas station. The cut, in the face of U.S. requests to increase oil production, is likely to strain ties between the Saudis and the Americans. As the production cuts don’t take effect until May, it is likely that the greatest repercussions will be felt in the second half of the year when oil demand is at its summer seasonal peak in the northern hemisphere as motorists take to the road. It is also expected that China’s economic reopening will be in full swing by that time, increasing demand – potentially pushing prices up to $100 per barrel. 

On Friday, U.S. jobs numbers were released. US employers added 236,000 jobs in March, below the expected 239,000. 2023 has seen successive drops in monthly new jobs from an impressive 504,000 in January, to 311,00 in February down to 236,000 in March. That is one million new jobs in 2023, and 4.1 million in the last year. The average job growth has been 345,417 per month for the last 12 months. The new data seems to indicate a cooling off in the job market as the effects of the Federal Reserve’s interest rate hikes are being seen in the economy. The industries with the highest growth are leisure and hospitality, healthcare and government, though their growth was also smaller. Job cuts also increased in March. There were 89,703 layoffs last month, a figure up 15% since February. The industries that reported the most monthly job losses were retail trade, manufacturing, construction and information services. The unemployment rate is at 3.5 percent. Fed Chairman Jerome Powell remains committed to bringing inflation down to the 2% goal and another 25 basis point (0.25%) interest rate hike is expected in the Fed’s May meeting. 

In a rare acknowledgement, a spokesman for the U.S. Navy said they has deployed a guided-missile submarine to the Middle East. The submarine, which can carry 154 Tomahawk cruise missiles passed through the Suez Canal on Friday – presumably on its way to the Persian Gulf. Tomahawk cruise missiles launched from ships or submarines can hit targets up to 2,500 kilometres (1,500 miles) away. The submarine is part of the U.S. Navy’s 5th fleet, responsible for the Persian Gulf, Red Sea, Arabian Sea, and parts of the Indian Ocean. Especially important is the Strait of Hormuz in the Persian gulf, through which 20% of all seaborne oil transits. 

In Israel, tensions have been boiling over on multiple fronts at a time of heightened religious fervour – with Ramadan coinciding with the Jewish holiday of Passover and the Christian Easter celebrations. After the evening Ramadan prayer on Tuesday, Palestinians barricaded themselves inside the al-Aqsa mosque – Islam’s third holiest site – with fireworks, sticks and stones after reports that Jewish extremists planned to sacrifice a goat at the site in observance of Passover, following the biblical tradition that dates back to the time when Herod’s Temple still stood. In the early morning on Wednesday, Israeli police stormed the al-Aqsa mosque compound, arresting 400 Palestinians in the ensuing clashes. Israeli police stated that “When the police entered, stones were thrown at them and fireworks were fired from inside the mosque by a large group of agitators”. Israeli police were filmed assaulting Palestinians and forcing them out of the compound. Police also used stun grenades and rubber bullets. The site is in Jerusalem’s Old City, and has long been a flashpoint between Jews and Muslims and according to an agreement in place since 1967, non-Muslims are allowed onto the site only during visiting hours, and they are barred from praying there.

The raids have caused outrage from the Arab and Muslim world and Palestinian fighters in the Gaza Strip, Lebanon and Syria responded to the Israeli attack with rocket fire. Multiple rockets were intercepted by Israel’s Iron Dome defence system in the south of the country. Israel has launched its own military responses to the rocket fire, launching air strikes against targets in Gaza as well as launching air, artillery and drone strikes against Syria. On Friday a car-ramming attack took place in Tel Aviv that killed an Italian man and wounded five other tourists. This attack came hours after a Palestinian man shot and killed two Israeli sisters and wounded their mother near an Israeli settlement in the occupied West Bank. On Saturday, Israel announced it would extend a closure on Palestinians entering Israel from the West Bank, and would also suspend special entry permits for Palestinians in Gaza to visit Israel for Ramadan prayers and for work. Overnight on Saturday, hundreds of Palestinian worshippers again barricaded themselves in al-Aqsa mosque, leading to fears of further escalation. Jordan – which officially manages the religious complex under a treaty – has warned of “catastrophic” consequences if police storm the mosque again. On Sunday morning police – heavily armed – lined up around the compound to separate Muslims and Jews. A mass blessing for Passover then took place at the Western Wall, which lies below the hilltop site. 

After a meeting took place between Taiwan’s President Tsai and US House Speaker Kevin McCarthy on Wednesday, China vowed to “take resolute measures to punish the ‘Taiwan independence’ separatist forces and their actions, and resolutely safeguard our country’s sovereignty and territorial integrity”.  China announced three days of military drills simulating an encirclement of Taiwan. Beijing has called the military drills a stern warning to Taiwan’s government. China’s military deployed “long-range rocket artillery, naval destroyers, missile boats, air force fighters, bombers, jammers and refuellers” around the island in a show of force. 

On Thursday the foreign ministers of Iran and Saudi Arabia met in Beijing. This is the first official meeting in over seven years. During the meeting the foreign ministers discussed the reopening of their embassies and consulates. On Saturday a Saudi “technical delegation” arrived in Tehran to continue the discussions. Later this month, Iranian President Ebrahim Raisi will visit the Saudi capital of Riyadh. It is expected that an announcement regarding the normalisation of diplomatic relations will be made at the end of the month during this visit. 

Turning to Canada, where on Thursday more than 1.2 million people were without power after freezing rain – when it reaches the ground it freezes immediately – and strong winds knocked trees onto power lines in the provinces of Ontario and Quebec. More than a thousand workers were attempting to restore power to the regions affected. 

In the week ahead:

It could be a tense week as we see the fallout of spats between the Saudis and the Americans, the Israelis and the Palestinians, and the Chinese and Taiwanese.