Why did Saudi Arabia Defy The United States over The OPEC Oil Supply Cut?

Saudi Arabia's energy minister famously stated that the kingdom "enjoys keeping everyone on their toes."

That is likely how White House officials and Democratic politicians felt when Saudi Arabia led OPEC to announce a massive cut in oil production this week, sparking fears of even higher inflation just five weeks before the midterm elections.

On Wednesday, OPEC+, the oil cartel led by Saudi Arabia and Russia, agreed to cut output by 2 million barrels per day, which is twice as much as analysts predicted, in the largest cut since the Covid-19 pandemic. The US's intense pressure campaign to persuade its Arab allies not to cut ahead of the decision appeared to fall on deaf ears. Russia is already pumping below its OPEC+ limit, and the majority of the cuts will come from Gulf producers.

Saudi officials insist that the kingdom must prioritize its own economic interests over domestic political considerations in the United States.

"We are concerned first and foremost with the interests of the Kingdom of Saudi Arabia," Energy Minister Prince Abdulaziz bin Salman al-Saud said in an interview with Saudi TV on Wednesday, adding that the government "wants to be a part of the global economy's growth."

Prince Abdulaziz said the cartel needed to be proactive as central banks in the West raised interest rates to combat inflation, raising the prospect of a global recession, which would reduce demand for oil and drive down prices.

"This appears to be a proactive measure to hopefully avoid a price crash that would necessitate a sudden cut as the US Federal Reserve continues to hike interest rates," said Ellen Wald, a nonresident senior fellow at the Atlantic Council think tank in Washington DC.

Because of its reliance on oil revenues, the Saudi economy has a history of succumbing to oil market boom and bust cycles, in which high prices bring in a flow of cash followed by downturns. According to experts, the kingdom is attempting to prepare for such an event.

"Saudi Arabia is attempting to avoid a repeat of 2008, when the market crash sent the global economy into a recession and oil prices suddenly plummeted, necessitating OPEC's emergency action," Wald said.

Analysts also believe that Saudi Arabia cannot afford to allow oil prices to fall below a certain level for fiscal reasons.

After eight years of deficits caused by low oil prices and the Covid-19 pandemic, the kingdom is expected to record its first budget surplus this year.

According to the International Monetary Fund, global oil prices must be around $79 per barrel for its budget to break even. Prices fell to $85 per barrel last month, from a high of $139 just seven months ago. That was a red flag for Saudi Arabia and other oil exporters who rely on oil for the majority of their revenue.

"But the Saudis want to ensure a steady stream of surpluses, not just balance the books," said Robert Mogielnicki, a senior scholar at the Arab Gulf States Institute in Washington, adding that the kingdom "would like to see prices moving closer to the high $90s."

Saudi Arabia has the world's lowest oil extraction cost, at around $3 per barrel. That means that the vast majority of the revenue generated by each barrel is retained by the company. Those funds are required to finance everything from futuristic trillion-dollar desert cities to a sizable government wage bill, despite recent tax increases and attempts to diversify the economy.

"The high price [needed to balance the budget] is due to large spending on government services, infrastructure investment, public sector, etc," said Omar Al-Ubaydli, director of research at the Bahrain-based Derasat think tank, adding that "conventional tax instruments, particularly personal income tax, are largely absent."

"It is attempting to have a diverse and stable revenue source for the government because unstable government finances are extremely disruptive to the economy," Al-Ubaydli added.

Still, Democrats have been outraged, framing Saudi Arabia's move as a hostile act against the US that benefits Russia by filling its coffers with petrodollars as it wages war on Ukraine.

"What Saudi Arabia did to help Putin continue his despicable, vicious war against Ukraine will be remembered by Americans for a long time," Democratic Senate Majority Leader Chuck Schumer tweeted on Friday.

The Biden administration reacted quickly. On Wednesday, White House press secretary Karine Jean-Pierre issued a statement saying that "it is clear OPEC+ is aligning with Russia." Secretary of State Antony Blinken stated on Thursday that the United States is "reviewing a number of responses" to Saudi Arabia's move, adding that the White House is "consulting closely with Congress." Some Saudis are calling the outpouring "hysterical."

The Biden administration may now back the bipartisan NOPEC bill, which would subject OPEC+ members to antitrust lawsuits by removing immunity from the cartel's national oil companies.

"The reaction from Washington policy circles is exaggerated," said Mohammed Alyahya, senior fellow at the Hudson Institute in Washington, DC. "Saudi Arabia is primarily concerned with keeping OPEC+ apolitical and focused on technical matters."

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Green Accounting: Save Our Generation!

 

Sustainable development goals are important. Now is the time to safeguard the well-being of people, the economy, society and the planet. Why is it important? Looking at the issue of sustainable development, the whole world has been facing a global pandemic that has cost millions of lives and an economic downturn. Then, development so far has not been carried out evenly, there have been many injustices, and has never been directed to sustainable development.

The current crisis is already threatening the achievement of sustainability and further delaying the transition to a green economy. However, a shared commitment to achieving sustainable development goals continues. The United Nations (UN) encourages not only governments, but also businesses to get involved in these goals.

Companies as active development actors must play a role in maintaining and caring for the environment and climate change to support sustainable development. Through a summit in Brazil in 1997, 178 countries worldwide agreed on a joint plan of action to improve human life and protect the environment.

Until 2015, the world again made the Paris agreement on climate change. They make fundamental support for sustainable goals by discussing issues of energy, water, climate, oceans, transportation, science and technology, sustainable development reports, and partnerships.

Current economic activity is one of the factors causing global warming and environmental problems. Many companies use limited resources to fulfill their corporate goals.

Thus, current development must be directed at sustainable development, namely development that balances aspects of the economic and social environment. Sustainable development is a compromise between limited natural resources and the achievement of economic goals.

One of the important aspects of sustainable development, namely the ecological or environmental aspects, will be fulfilled if the company implements Green accounting which is proven to improve environmental performance.

In every industrial development, it is important that the company pays attention to the surrounding environment so that this can prevent pollution or damage to the environment and sustainable natural resources and the carrying capacity is not disturbed.

The main principle of sustainable development is to meet the needs of the present without compromising the needs of future generations. Therefore, green accounting is able to fulfill environmental and social aspects in achieving sustainable development by allocating environmental costs.

Sustainable development can be achieved if development activities carried out in addition to pursuing economic interests, also pay attention to social and environmental interests. Thus, efforts to link the company's economic interests and environmental conservation with the implementation of Green accounting, the results of the financial statements will be holistic.

In 1971, Parker has explained green accounting or what is called Green accounting. Then Green Accounting has experienced scientific progress. The concept of green accounting involves the assessment of environmental costs and resource losses within a country.

It has become a necessity for companies to develop methods to promote green incentives for the present and the future through green accounting. By studying green developments and becoming the big picture, green accounting is able to promote a sustainable future.

Sustainable development requires companies to consider their performance goals in three dimensions, namely: financial, environmental and social. That is, the company has a goal to gain profit in the financial aspect, but the company is required to protect the environment and social.

In addition, an understanding of environmental issues will direct the company in its policies, especially those related to environmental safety

In fact, sustainable accounting, social reporting, and the environment have not really been rooted in the concept of sustainability and ecology. Reporting and accounting concepts that exist are only as a complement and legitimator of the company, that the company does have social and environmental concerns only "clothes" and not the "heart" of the company.

However, many researchers state that the main source of environmental damage in addition to thinking about economic benefits, companies should also be responsible for the environment. As explained above that companies must return to improve the environment.

The old business paradigm, the organization was only built with a single P (profit), but in line with the current global warming issue, the company began to take into account the 3P concept, not only profit but also have to look at the planet and people.

Triple bottom line theory implies that companies must prioritize the interests of stakeholders (all parties involved and affected by the activities carried out by the company) rather than the interests of shareholders (shareholders).

The demands on the company are getting bigger and the company must look at a new side, namely the company's responsibility to stakeholders, and the company is not only concerned with the interests of management, but also employees, consumers, society and the environment.

Thus, when humans are empowered and the planet remains sustainable, profits will come automatically, both the benefits enjoyed by management as the entity's managing agent and investors as owners of the economic entity.

So profit (profit) is not the first and main goal, but becomes the impact of good and responsible company performance. Profits that will be long term and sustainable.

With green accounting, sustainable development goals can be achieved. Green accounting must be implemented properly, companies should pay special attention to protecting the environment and disclosing environmental management by companies.

According to the concept of sustainable development, resources are used to meet current needs, without reducing future resources. Therefore, it is said that implementing green accounting can save our future generations.

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China's Economy is in a Slump, What Will be The Impact on Indonesia

China is a superpower and the number 2 most influential country in the world, but now its economic condition is being discussed. The economic condition of this country is described as being on the brink of crisis. This is based on several factors, such as the Covid-19 pandemic and exacerbated by tensions in world geopolitics.

One proof of the economic downturn of the bamboo curtain country is the crisis in the property market. As we know, China applies a ponzi scheme in the development of their property business. This means developers are 'turning' the money they have received from property sales to build new properties. Since the Covid-19 pandemic has caused a decline in people's purchasing power, there is no source of income for developers. As a result, some of the properties that are being built are no longer working and are left unattended. This of course causes huge losses for the country's economy.

Then extreme weather also has an impact on China's industrial sector. A severe heatwave and drought hit the southwestern provinces of Sichuan and Chongqing in August 2022.

As a result, the demand for air conditioners has soared. The impact of this is an increase in the use of electricity, the majority of which depend on hydroelectric power. Factories such as iPhone, Foxconn, and Tesla were forced to cut working hours, some even closed completely.

Furthermore, many have questioned the influence of China's economic conditions with Indonesia, especially since Indonesia is currently establishing an 'intimate' trade relationship with the bamboo curtain country. China is the 3rd largest contributor to investors in Indonesia after Singapore with an investment value of US$ 1.4 billion. This number increased from the same period last year, which was US$ 1.1 billion.

Not only that, in the same year, China is still Indonesia's largest trading partner. The total trade between the two countries reached US$ 35.6 billion.

Bhima Yudhistira as Director of the Center of Economic and Law Studies (CELIOS) is of the opinion that this influence can occur, especially against the background of the close relationship in the economic sector between Indonesia and China. "Could the transmission line be faster," said Bhima, quoted from detikcom, Thursday, October 6, 2022.

China has a 30 percent share as the country of origin for imports and 20 percent as a destination for commodity exports from Indonesia, said Bhima. Furthermore, it is necessary to pay attention to the derivative impact of the economic recession experienced by the country.

Bhima highlighted the production activities of electric car factories in China. The decrease in purchasing power by consumers causes a decrease in the quantity of production. This affects the return of nickel raw materials from Indonesia.

"That could lead to a sharp decline in Indonesia's export receipts, the trade surplus could turn into a trade deficit," said Bhima.

Furthermore, the effect felt was the weakening of the rupiah exchange rate. According to him, logically, investors will postpone their investment plans and look for alternatives to assets that are much safer, adjusting to the situation and conditions in their home countries.

In the import sector, he said, particularly in the electronics and automotive assembly industries as well as construction projects that use raw materials from China.

“Domestic prices will increase, while from the consumer side, of course they are not ready, so what is likely to happen is a decrease in sales. Furthermore, business actors may not increase prices, but of course the quality of an item will be lowered,” he said.

The increase in interest rates is likely to occur again and is offset by the weakening of the rupiah exchange rate due to inflation driven by rising import costs. According to Bhima, Indonesia seems to feel the symptoms of an economic recession as a result of its main trading partner countries.

“It has been felt that the last week there has been a significant fluctuation in the Rupiah exchange rate. In addition, interest rates also experienced a fairly aggressive increase by the central bank. That's why it's starting to feel like inflation. The latest data is almost 6%, which is the highest since 2014," he said.

In contrast to countries located in Southeast Asia with a not-so-big domestic market, such as Thailand, Malaysia, and Vietnam. Moreover, small countries whose economic milestones are driven by the global economy, such as Singapore and Hong Kong.

Furthermore, Faisal also highlighted the conditions of integration or the relationship between the Indonesian economy and the external economy, which according to him is relatively small.

"Although it has been getting higher and higher, but when compared to other countries, it is relatively smaller. Compared to Malaysia, Thailand, the Philippines and Vietnam. We have cleaner relations with the global economy, including China. So this makes us relatively more resilient if compared to other countries," he added.

China is one of Indonesia's main export/import sources. The Central Statistics Agency as of August 2022 noted that the value of Indonesia's imports from China reached US$ 6.596 trillion or equivalent to Rp. 100.26 thousand trillion (exchange rate of Rp. 15,200). This amount covers almost 1/3 of the total value of Indonesia's imports.

Meanwhile, the value of Indonesia's exports to China in the same month reached US$ 6.398 trillion or equivalent to Rp 97.25 thousand trillion, which also reached almost 1/4 of the total value of Indonesia's exports that month.

Not only that, in a note quoted from detikcom last April, China was in the 3rd position for the largest foreign investment value, with a nominal value of US$ 1.4 billion or equivalent to Rp. 21.28 trillion. Its position is just below Hong Kong, which is in 2nd place, and Singapore in 1st place.

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