OPEC+ mulls kicking Russia out

Some members of the OPEC+ oil cartel are considering expelling Russia from the alliance, just as the US looks to reset relations with the group’s de-facto leader Saudi Arabia, the Wall Street Journal reported on May 31.

Russia, Saudi Arabia and other leading oil producers have been co-ordinating oil supply for five years, restricting how much crude is released onto the market in a bid to keep prices high. Excluding Russia could allow Saudi Arabia, the UAE and other members to significantly ramp up supply, which would help bring down soaring oil prices, providing some comfort to consumers in Europe and the US.

OPEC+ have been gradually been bringing extra supply back online, but difficulties that Russia has had in exporting crude amid fallout from its war in Ukraine and standoff with the West have caused the country’s output to drop by 8% this year, according to the International Energy Agency (IEA). This means that OPEC+ as a whole is set to produce significantly less than its quota.

There is no formal plan for OPEC+ to increase production to make up for Russian losses, although some members in the Persian Gulf intend to raise output in the next few months. The group is due to meet on June 3, when they are expected to approve a planned increase of 432,000 barrels per day (bpd) the following month.

In the US, the Biden administration is under pressure to bring down gasoline prices ahead of the midterms in November this year. President Joe Biden is anticipated to travel to Saudi Arabia soon, potentially this month, to meet with Crown Prince Mohammed bin Salman (MbS). Ties between the two countries have been strained by Biden’s decision last year to scale back support for Saudi Arabia’s military campaign in Yemen.

“There’s been too much shuttle diplomacy for this to be smoke and mirrors about a US-Saudi reset,” RBC strategist Helma Croft said in an interview with Bloomberg.

Europe, meanwhile, is anxious to tap additional oil supply to help fulfil its goal of cutting Russian oil imports by 90% by the end of the year, in order to deprive Moscow of revenues to fund its war in Ukraine.

Russian Foreign Minister Sergei Lavrov was also in Saudi Arabia, where both men praised the importance of OPEC+ co-operation, according to his ministry, signalling that the kingdom may not be in favour of pushing Russia out of the alliance.

“They noted the stabilising effect that the tight co-operation between Russia and Saudi Arabia has on world markets for hydrocarbons in this strategically important sector,” the ministry said in a statement on its website.

Saudi Arabia has not commented on the matter.

Beijing has not signalled anything of the sort, and nor have there been any reports of such, but China also has some interest in seeing OPEC+ release the oil taps, given that it is, after all, the world’s biggest oil importer. However, the Chinese government must balance this with its political interest in ensuring stability in Russia.