The world economy is moving closer to a recession, according to a warning from the International Energy Agency following the dramatic reduction in oil output by OPEC+ members.
The oil-producing countries of OPEC+ shocked the world, notably the United States, by announcing a 2 million barrel per day reduction in output. The reduction is the organization’s sharpest output decline since the pandemic’s inception.
“With unrelenting inflationary pressures and interest rate hikes taking their toll, higher oil prices may prove the tipping point for a global economy already on the brink of recession,” said the IEA.
The IEA cut its forecast for the increase of global oil consumption by 20% starting next year as a result of the OPEC+ agreement. Additionally, the agency anticipates a decline in growth projections, especially for important institutions.
The International Monetary Fund predicts that in 2023, people will start to notice the evident impacts of the recession. As a result, they have lowered their projections for GDP growth from 3.2% to 2.7%.
Oil prices will remain high until there is a large revival of oil production as a result of Saudi Arabia and other oil-exporting nations’ production curbs, which will significantly reduce the amount of oil available globally.
“The massive cut in OPEC+ oil supply increases energy security risks worldwide,” said the IEA.
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The US is affected
The cutbacks announced by Saudi Arabia and the other OPEC+ members have disturbed the whole world. Moreover, gas prices will diminish the sway of Democrats, who have been anchored on the promise of relieving inflationary pressures on the country’s inhabitants, as the US midterm elections approach.
Thus, none is more outraged than the US, which condemned the move as “shortsighted.”
“OPEC is trying to shock and awe with a big production cut number that is going to get people’s attention. And they’re trying to support prices to keep them from falling further,” said Yasser Elguidi from Energy Aspects.
“I am in the process; when the House and Senate come back, there’s going to be some consequences for what they’ve done with Russia,” said president Biden in an interview.
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The price increase
The IEA predicts that the reduction will result in an increase in oil prices. According to estimates, OPEC will cut the output by 2 million barrels per day. However, the IEA predicts that the reduction will only amount to 1 million barrels per day because Russia may not agree with the organization’s decision. Oil prices will eventually reach an average of $100 per barrel as a result of countries failing to fulfill their production targets and the current OPEC output cuts. And if things become worse, this rate may go up.
The IEA continues by stating that this development would encourage non-OPEC nations that produce oil to maximize their operations and produce more than their daily average. However, the issue is the nation’s rising inflation as well as its limited capacity for investment and financial assistance.
Photo Credit: IEA