Earlier this month, the petroleum cartel of 13 countries announced yet another decision to cut oil production. They were making efforts to ensure marketing stability, but their real goal was to drive up oil prices. The group of 13 nations plus its allies, known as the Organization of Petroleum Exporting Countries (OPEC+), controls almost a third of the global crude oil market and is led by the world’s two largest oil producers, Saudi Arabia and Russia.
The Organization has pledged to reduce oil production by 3.7 percent, or around 3.66 million barrels per day. But beginning on May 1, 2023, a daily reduction of 1.2 million barrels will be implemented until the end of the year. Should the price continue to fall, they have decided to cut production by an additional 3.66 million barrels per day.
Western countries, especially the United States, have always been critical of what OPEC+ countries do. A few months ago, in October 2022, the same group cut the amount of oil they make each day by about two million barrels. The US has been upset by their choice since last October and again this month, saying that the move is unadvisable “at this time given market uncertainty.”
Since their last decision, prices have fluctuated dramatically, and this month is no exception. After the price of a barrel of crude oil dropped to its lowest point of USD 84 in September 2022, OPEC’s move to cut production pushed the price up to USD 96 the following month. However, the market did not remain stable as the Organization had anticipated. Even though it was projected that prices would go up because oil production was going down, there was no sign that the price of a barrel of oil would increase.
Before the decision was made at the beginning of April, a barrel of crude oil was being sold for approximately USD 80, but immediately after the decision, which would go into effect in May, oil prices increased by approximately USD 10 per barrel due to speculation, a situation that has adversely impacted import-dependent countries like Ethiopia.
At USD four billion, a big chunk of Ethiopia’s foreign currency revenue goes toward importing petroleum products every year. This is the same amount of money that the country made from exports in just one year, so petroleum bills have been the biggest problem for the government.
Managers of the Ethiopian Petroleum Supply Enterprise, a state-owned company whose function is to bring petroleum products into the country, are worried that this new development could throw off their plans for the year.
When the Enterprise negotiates deals for a year’s worth of petroleum procurement, it does so with only the shipping and related costs already established in advance. When a shipment is ready, the price of fuel would be set by looking at the global fuel market.
Taking all the standard operating procedures into account, the Enterprise’s CEO, Tadesse Hailemariam, is concerned about the fresh development in the global oil market.
“Any increase in the price of fuel would raise the country’s foreign currency spending. Obviously, a rise in gas prices would have an impact on the local commodity market,” he said. “There is no doubt that we will bear the consequences.”
Tadesse, who is both an expert in the sector and a concerned professional, has been keeping an eye on the latest events in the global oil market. According to him, the reason that the OPEC+ countries provide for stabilizing the market is nothing more than an irony, as he believes that it would rather destabilize the market.
Ethiopia’s demand for petroleum is expected to rise as the country’s economy recovers following the end of the war in northern Ethiopia involving Tigray, Afar, and Amhara regions. Benzene imports were 2.5 million liters per day on average last year, while diesel imports were nine million liters. The trend for diesel remains unchanged this year, but benzene demand has increased slightly, with the current daily import of benzene standing at 2.8 million liters, according to Tadesse.
There are repercussions felt not just in Ethiopia but also in other countries.
Recent events have shown how the once-dominant Western countries are falling behind in the new world order. Aside from the oil cartel group’s resolve to restrict oil production, the globe has been watching how certain increasingly powerful countries are preparing to make de-dollarization a reality.
The pursuit of de-dollarization is accelerating more rapidly than ever before, with the BRICS countries redoubling their efforts to render the USD irrelevant in their trade. The name BRICS stands for Brazil, Russia, India, China, and South Africa, the five Asian, African, and Latin American countries regarded as the leading emerging economies.
The geopolitical bloc was founded two decades ago to provide each other with business opportunities; nevertheless, the bloc gradually became more interested in changing the path of international political order and became Group Seven’s (G7) main competitor. The G7 group includes the US, France, Canada, Japan, Italy, Germany, and the United Kingdom.
Two of the BRICS countries, China from Asia and Brazil from Latin America, revealed their intention to trade using their own currencies a few weeks ago, sparking global outrage. It was also regarded as the first move towards implementing the BRICS’ de-dollarization policy. Following this event, words that the BRICS members’ new proposal to create a common currency at their 2023 summit in South Africa emerged.
Prior attempts by the bloc’s member nations, as well as agreements by non-member nations such as Saudi Arabia to sell fuel to China in Yuan, have remained a source of concern for the United States. It remains to be seen what action the world’s economic powerhouse, the US, will take to lessen the impact of the repercussions. For the time being, rising economies are plotting to dethrone its currency’s dominance in the global market.