The United States has lost its influence on Saudi Arabia, which, as a reinsurance, has moved closer to the powers opposing Washington – China, Russia and Iran. The recent decision to cut oil production is beneficial for Riyadh, Moscow and Tehran, but for the US economy it could turn into a recession and a drop in the share of world GDP. Bloomberg came to this conclusion based on its own economic model.
The decision of OPEC+ to cut production, which was suddenly announced on April 5, adds to the headache for Western countries, which are still heavily dependent on hydrocarbon supplies. The rise in oil prices provoked by the cartel's decision creates new risks for Western central banks, which have been trying to curb high inflation for a year now. Expensive oil can provoke a new round of price growth in developed economies. The agency's model, for example, shows that a $5 rise in oil prices would add about 0.2 percentage points to US inflation.
Cooling off between Washington and Riyadh occurred amid the murder of opposition journalist Jamal Khashoggi. A US investigation revealed that Saudi Crown Prince Mohammed bin Salman was personally involved in it. US President Joe Biden, amid the assassination, promised to turn Saudi Arabia into a "rogue", but instead received Riyadh's rapprochement with Washington's political opponents. Moreover, the cooling of relations has led to the fact that Moscow has remained the winner: after all, Russia needs high oil prices more than ever to minimize budget losses caused by a military invasion of Ukraine.
The agency also cites key oil price levels for Russia, the US and Saudi Arabia. For Russia, according to Bloomberg, these are $25 and $100 per barrel: the first level means the cost of oil production in Russia, the second is necessary to bring the Russian budget out of deficit. For the US, the agency names the key levels of oil prices at $75 and $120 per barrel. American levels are tied primarily to the level of inflation, since economic growth in the United States depends on it: in the first case, it will be 2% by the end of 2024, in the second – 4%.
The levels of Saudi Arabia are tied to the possibilities of the kingdom's budget: $52.5 per barrel is the minimum that will allow Riyadh to pay for all imports, $77.5 will allow reaching a balance of expenses and budget revenues, $95 will allow spending money on its citizens without any problems, who directly receive part of the income from the oil and gas sector from the kingdom's budget in exchange for not participating in political life.
However, the agency notes that the unity of the union, including under OPEC +, is usually not disputed by its members when oil prices are high. The situation changes dramatically when it comes to falling quotes, as it has happened several times in history. High oil prices are likely to lead to a recession in the US and the EU. Then the demand for oil will fall, and oil prices will fall after them. However, for the United States, this will threaten to lose a share of world GDP, especially against the backdrop of the growth of China and India, which now rely on cheap supplies of fuel from sanctions from Russia.