Self-Interest, Not Benevolence

One of the lead articles today is that Saudi Arabia is arranging for OPEC to cut back on oil production.  A typical example of the news on this, which is less than flattering to President Joe Biden, is at

This will play back into natural gas prices, although not with the clockwork it would have before shale gas, and will in turn play back into electricity pricing. 

It is important to recognize that there is not much that President Biden can meaningfully do if the pressure is to be kept on the regime of Vladimir Putin, and the general trend of the Democratic policies are to be maintained.  U.S. oil company capital expenditures have significantly increased, but so have costs, as in

The oil companies have to have some reserve in case of a recession, which is being forecast by a number of sources, some not totally self-interested or politically biased, including Donald Kohn, as in

Some sort of price guarantee for the oil producers might help.  But the most likely outcome is that this oil restriction will slow growth, and increase inflation, and increase the odds of a recession in 2023 or 2024, as the Federal Reserve and other central banks raise interest rates to fight the continuing inflation. 

The Saudis have gone through this before, of course, and it is an issue of "Be merry now, for tomorrow we may die".  You want to look at the graph on p. 5 of

and look how oil revenues as a percentage of GDP collapsed in the early 1980s, reaching bottom in 1985.  The Saudis are not in this to help President Biden and the Democrats; they are in this to get money now, before things turn to the worse.