GP Short Notes

GP Short Notes # 673, 9 October 2022

The US: Courting dictators to keep a favourable energy market
Ankit Singh

What happened?
On 5 October, Wall Street Journal reported that the White House may ease sanctions on Venezuela and its dictator Nicolás Maduro to increase the supply of oil for the global market.
 
Another energy-related development was the decision by OPEC+ to reduce oil production by 2 million barrels per day. The group currently supplies around 44 per cent of the world crude oil exports. The decision to reduce productions was not appreciated by the US which expected an increase in production.

What is the background?
First, the premise of the decision. The development came after Venezuela, on 1 October, released seven American prisoners, five of which were oil executives. In the same week, Venezuela’s opposition leader’s team consulted the US for the preliminary technical service agreement reached between Petróleos de Venezuela, S.A. (PDVSA), a Venezuelan state-owned oil and natural gas company and Chevron, an oil major from the US to further expand the joint ventures in Venezuela.
 
Second, oil is primary and democracy is secondary. After the presidential elections in Venezuela in 2018, a sanctions policy led by the US was enforced on Maduro’s cabinet members for rigging elections. Venezuela was primarily isolated in the Americas. However, the joint venture between Chevron and PDVSA in oil production continued. The joint venture is set to expire on 1 December and the tight oil market might nudge Biden to cooperate with Venezuela while Maduro agrees to provide constructive steps in conducting elections. Parallelly, the US also restarted talks on Iran's nuclear deal so that, as an outcome, Iranian oil in the global market could offset the shortage caused by disruptions in oil supplies due to conflict between Russia and Ukraine.
 
Third, Biden’s climate change promise and upcoming mid-term election. When Biden was elected as the President, he announced that the US would re-join the Paris Climate Agreement. Since then, Joe Biden has taken several steps to curb domestic fossil fuel production. Stringent climate disclosure rules for the private sector and environmental regulations have affected the growth of fossil fuel-based energy production. However, the approval rating of Joe Biden has dropped way below the 50 per cent mark and any positive news on easing of oil supplies from outside will help the US populace and Joe Biden in long term.
 
Fourth, contracting the US economy and geopolitics. Since the onset of the Russia-Ukraine conflict, the US has imposed sanctions on Russia’s oil and gas business. The West, led by the US, has been hit by disruptions in oil supplies and that problem is further complemented by recessionary trends across the world as all central banks have been raising interest rates to cool off demand while supply stabilizes. The recalibration of supply chain networks which might result in ousting of Russian oil and gas stakes needs further support from outliers and hence the US is courting dictatorial regimes like Venezuela.

What does it mean?
First, challenges to sanctions policy. The US is in the concessionary corner now and that might give space for dictatorial regimes like Venezuela and Iran to wait further and seek maximum concessions. The sanctions policy has proven to be temporary and it might mean more than just sanctions to bring everyone on board to ensure a global recovery from the pandemic-induced disruptions. This will make the fiscal challenges for developing economies far worse as they would have to pay for uncertain import energy bills for a longer time.
 
Second, higher credit bills and mortgage rates will push lower-income families in the US to pay for higher bills and subsequently higher guarantee from the US federal reserve to remain the leader in driving market-led development and growth. The soft landing of the economy may remain a distant dream for the US for now. The alliances of the west may become more de-hyphenated as oil economies, most of them dictatorial, will not concede to the larger policy perspective of the US in the current development paradigm.
 
Third, the US might have to release more reserves from its strategic petroleum reserves until the oil dictators come in confidence with restoring supply chain disruptions. That will make the US more prone to any global disruptions and it will cause a blood bath in markets based on the speculative practices in the market.

30 October 2022 | GP Short Notes # 681
Putin's address in the Valdai Club" Four Takeaways
30 October 2022 | GP Short Notes # 680
Elon Musk's Twitter deal
23 October 2022 | GP Short Notes # 679
The UK: Liz Truss' resignation spins political chaos
16 October 2022 | GP Short Notes # 677
UN deems Russia’s referendums illegal
13 October 2022 | GP Short Notes # 676
China: UNHRC proceeding on Xinjiang
9 October 2022 | GP Short Notes # 675
Trade and Statistics Outlook 2022-23: Four takeaways
9 October 2022 | GP Short Notes # 674
OPEC: The curious case of OPEC's production cuts

9 October 2022 | GP Short Notes # 672
Reducing Inequality Index 2022: Three Takeaways
2 October 2022 | GP Short Notes # 665
The new DART Mission: A new era of planetary defence

29 September 2022 | GP Short Notes # 669
Iran: Protests spark against hijab rules
25 September 2022 | GP Short Notes # 664
Putin and Russia's New Ukraine Strategy
22 September 2022 | GP Short Notes # 668
EU's food waste 2022: Three takeaways
18 September 2022 | GP Short Notes # 663
Sweden: 2022 elections reflect political polarization
18 September 2022 | GP Short Notes # 662
SCO Summit 2022: Who said what
16 September 2022 | GP Short Notes # 666
Global Estimates of Modern Slavery 2021: Six takeaw
16 September 2022 | GP Short Notes # 665
North Korea: New legislation hinders denuclearization talks

16 September 2022 | GP Short Notes # 664
Ukraine: Counteroffensive in Kharkiv and Kherson
11 September 2022 | GP Short Notes # 661
Bangladesh: Sheikh Hasina’s State visit to India
11 September 2022 | GP Short Notes # 659
Russia: Military exercise Vostok 2022

8 September 2022 | GP Short Notes # 658
The UN report on Xinjiang: Four Takeaways
1 September 2022 | GP Short Notes # 656
Iraq-Al-Sadr Withdraws, Protests Intensify
7 August 2022 | GP Short Notes # 653
Sri Lanka starts bailout talks with IMF
31 July 2022 | GP Short Notes # 651
Tunisia: Referendum paves the way for one-man rule

24 July 2022 | GP Short Notes # 649
Putin’s meeting with Khamenei and Erdogan
17 July 2022 | GP Short Notes # 648
Elon Musk Versus: 'Twas a troll after all
3 July 2022 | GP Short Notes # 643
NATO 2022 Strategic Concept: Four takeaways

26 June 2022 | GP Short Notes # 639
Saudi Arabia: Rapprochement with Turkey

26 June 2022 | GP Short Notes # 638
Europe: Approving Ukraine's candidature for the EU
8 May 2022 | GP Short Notes # 635
EU: New sanctions on Russia

24 April 2022 | GP Short Notes # 631
Russia: New nuclear-capable ICBM test

17 April 2022 | GP Short Notes # 629
Elon Musk and the battle for Twitter
10 April 2022 | GP Short Notes # 627
New actions and sanctions on Russia

28 March 2022 | GP Short Notes # 625
Europe: The new focus on defence
28 March 2022 | GP Short Notes # 624
The G7 Summit: Focus on Russia and Ukraine’s defence
20 March 2022 | GP Short Notes # 622
China: A careful strategy on Russia and Ukraine
13 March 2022 | GP Short Notes # 620
China: Fifth Session of the 13th NPC
13 March 2022 | GP Short Notes # 619
Ukraine: The Versailles declaration of the EU leaders

6 March 2022 | GP Short Notes # 617
Sanctions against Russia: Effects and Divides
12 February 2022 | GP Short Notes # 614
Quad summit in Australia: Focus on the Indo-Pacific 
12 February 2022 | GP Short Notes # 613
The One Ocean Summit: A framework toward conservation
5 February 2022 | GP Short Notes # 612
Escalation and de-escalation in the Ukraine crisis
29 January 2022 | GP Short Notes # 610
The Normandy Format: Europe, Russia and Ukraine
15 January 2022 | GP Short Notes # 609
Mali: Tensions escalate as ECOWAS imposes sanctions
15 January 2022 | GP Short Notes # 608
Kazakhstan: Russia, China and the protests
15 January 2022 | GP Short Notes # 606
India, China 14th round of military talks in Ladakh
8 January 2022 | GP Short Notes # 605
The US: Remembering 6 January

Click below links for year wise archive
2021 | 2020 | 2019 | 2018

Click here for old Short Notes