Link to article: https://www.aljazeera.com/economy/2021/1/5/oil-climbs-5-on-saudi-voluntary-oil-production-cut
Saudi Arabia announced that it will cut its oil production by one million barrels per day. This choice was an attempt to deter other members of the Organization of the Petroleum Exporting Countries (OPEC, an IGO) away from raising their own quotas. Many member countries have been anxious to raise their production levels to stimulate their economies, but the prospect of new Coronavirus lockdowns could quickly lead to another steep drop off in oil demand, both locally and abroad.
Tensions have also been building after Iran took control of a South Korean vessel, claiming that the country owed Iran $7 billion.
The price of oil is directly connected to how much is produced daily (the classic supply vs demand). OPEC places limits on production in an attempt to keep the price stable. However, some member countries of the IGO don’t want to follow the quotas that the organization sets. This leads to conflict between states and an instability of the oil market.
By voluntarily cutting its own oil production, Saudi Arabia is hoping to inspire other countries to do that same. Most member countries are suffering recessions due to Covid-19 lockdowns. If Saudi Arabia can convince other countries to also cut production, the price of oil will rise because it would be more scarce.
Saudi Arabia’s actions can be seen through the realist perspective. The country made a choice to limit its own production in a direct attempt to increase its own prices with the goal of stimulating its economy, regardless of what its neighboring countries eventually decide to do.
Saudi Arabia’s actions can be seen through the liberal perspective because the country was trying to inspire other oil-producing countries. If the country succeeds in convincing other OPEC member countries to do the same and cut their production rates, Saudi Arabia will have helped its competitors. This is not in its national interest short term, but it is long term because it will help stabilize the energy market.