In response to reduced demand for oil due to the coronavirus pandemic, the Organization of the Petroleum Exporting Countries (OPEC) proposed capping production among member states to stabilize crude oil prices. OPEC called on Russia, which is in a three-year agreement with the organization to coordinate global oil supply that expires at the end of March 2020, to abide by the new caps. Russia refused, and OPEC, led by Saudi Arabia, retaliated by increasing production. By flooding the market with oil, prices for crude oil plummeted to an eighteen-year low of $20.06 per barrel on March 18th. To protect oil producers in the United States from this price shock, President Donald Trump ordered the Department of Energy to purchase 77 million barrels of US-produced oil for the US Strategic Reserve.
Although a drop in crude oil prices would ordinarily be a godsend for economic growth, the uncertainty of how long the dispute between Russia and OPEC will last, the substantial disruption in planning for smaller oil-producing countries and those in the process of shifting to renewable energy sources, and the mounting economic damage of the coronavirus pandemic are widely believed to negate any economic benefits. For many countries, a long stand-off could not come at a worse time. In this RPI Policy Alert, we review the Rising Powers’ responses to the crisis. Read the full Policy Alert here.
