Surprise Production Cuts by Oil-Producing Countries... Yellen Criticizes as "Not Constructive"

Leading Saudi Production Cuts Against US Energy Hegemony
White House, Previously Upset, Now Calls It a "Strategic Partner"

U.S. Treasury Secretary Janet Yellen directly criticized the large-scale additional production cuts led by Saudi Arabia and other oil-producing countries as "unconstructive behavior." Despite requests from the United States, the White House appears to be moderating its response compared to the production cuts in October last year, referring to Saudi Arabia as a 'strategic partner' amid Saudi Arabia's ongoing production cut moves.

On the 3rd (local time), after a lecture at Yale University, Secretary Yellen told reporters that the Organization of the Petroleum Exporting Countries Plus (OPEC+) production cuts were "very unconstructive behavior at a time when it is important to keep energy prices low."

She criticized the recent additional production cut decision, saying it does not help global economic growth or efforts to combat inflation. Secretary Yellen stated, "We do not yet know how the cuts will affect energy prices, but it is clear that they are not positive for global growth and increase uncertainty and burdens at a time when inflation is already high."

She also said that Western countries, including the U.S., will not immediately change the price cap applied to Russian crude oil because of the production cut decision.

She said, "I don't know if this is significant enough to affect the appropriate level of the price cap. Of course, if we determine that we need to review the cap level, we may change it, but for now, we do not think it is appropriate."

[Image source=Reuters Yonhap News]

The day before, OPEC and the non-OPEC major oil-producing countries, including Russia, collectively known as OPEC Plus, announced an agreement on large-scale production cuts starting next month. The production cut decision led by Saudi Arabia is separate from the total 2 million barrels cut announced last October, with the total cut amount reaching 1.66 million barrels per day (bpd).

The surprise production cut decision by the oil-producing countries caused international oil prices to surge. On the New York Mercantile Exchange, May delivery West Texas Intermediate (WTI) crude oil prices closed at $80.42 per barrel, up 6.28% from the previous session. This is the largest daily increase since April 12 last year. On the London ICE Futures Exchange, June Brent crude also rose 5.7% ($4.56) to $84.45 per barrel, marking the largest increase in a year.

The Biden administration immediately opposed the surprise production cut decision that defied the U.S., but the level of response has significantly softened. John Kirby, White House National Security Council (NSC) Coordinator for Strategic Communications, said, "Considering market uncertainties, the current production cut decision appears undesirable. And we have made that position clear."

However, Coordinator Kirby added, "As has been the case for the past 80 years, Saudi Arabia remains a strategic partner," and said, "Our country and Saudi Arabia do not always agree, but that does not mean the strategic partnership disappears."

This shows a moderated response compared to the strong condemnation of Saudi Arabia, which led the production cuts last October, calling it a "short-sighted decision" with "consequences."

The White House further explained that the review of relations with Saudi Arabia announced last October is a routine matter. Coordinator Kirby said, "There is no bilateral relationship that we do not continuously examine to ensure it aligns with our foreign policy goals and national security interests," adding, "We do this routinely worldwide."

He continued, "We have never said that we have to submit reports or deliverables," and regarding consequences, he said, "There were restrictions on arms sales at the congressional level," adding, "We are focused on moving forward."

Meanwhile, Crown Prince Mohammed bin Salman of Saudi Arabia, who is strengthening cooperation with China and reducing dependence on the U.S., has issued successive production cut measures despite pressure from President Biden, leading to interpretations that Saudi Arabia has effectively sided with Russia.