Saudi Arabia, Russia : decision to cap oil output risks further angering yellow vest movement in France

Over the weekend, Russia and Saudi Arabia decided to put a cap on oil production. On Monday, Brent Oil prices went up by $2.60 to $62.06 and West Texas Intermediate with $2.42 to $53.35. The cap, if implemented, may reduce world oil production with one million barrels per day and drive up petrol prices. In France, tax on petrol prices caused weeks of riots by “gilets jaunes”.

OPEC AFP/Getty Images

"This is bad news for the French government and the “Yellow Vest” movement,” says Francis Perrin, senior research fellow at the French Institute for International and Strategic Affairs Iris in Paris.

On January 1 this year, petrol went up with 5 cents per liter, while diesel went up with 12 cents, as part of a plan initiated by the government of François Hollande, and followed by Emmanuel Macron, in an attempt to encourage car users to look for greener alternatives.

Tax in fuel prices are set to increase each year on January 1st until 2020.

But the taxes became the focus for the “Yellow Vest” protest movement that quickly spun out of control into nationwide anti-government riots.

Oil prices fall

Oil prices fell some 30 percent since the end of October and the last week of November, according to Perrin.

But on Monday, prices went up again, driven by the news about the Russia-Saudi Arabia plan to put a cap on production.

And as a reaction to a trade agreement between the US and China.

“Trade wars are not very good for economic growth, energy demand and oil demand,” says Perrin.

The Russian-Saudi plan still needs to get approval from all 15 Opec members and 10 non Opec members before it can be implemented.

OPEC meeting in Vienna

A decision may be taken during the upcoming Opec, that will take place in Vienna on 6 December.

Not only oil producing countries will benefit from a cap on production of traditional petroleum.

“At the end of the day, more than anybody, it benefits the US shale producers,” says Firas Modad, director of the Middle East team of IHS Markit, contacted by RFI.

“They would see that Opec is restricting its production at a price that is workable for them, and it would be an incentive for them to continue pumping,” he says.

Another element of the Saudi-Russian deal is that it functions as a face-saver for Saudi Crown Prince Salman Bin Mohammed, who is under fire as a result of the murder of Washington Post journalist Jamal Khashoggi in the Saudi consulate in Istanbul on 2 October.

A deal with Russia means that Moscow “doesn’t want to set a precedent that killing a journalist is enough to get you to a pariah status,” says Modad.

“So they would offer some kind of face-saving measures,” adding that the Saudi-Russian relationship extends to many layers, including “economic partnerships, the possibility of cooperating on Syria, and a shared distrust of democratic governments.”

But the deal will only put more "fuel on the protest fire" started by the “Yellow Vest” activists in France.

The French government was planning to increase fuel taxes again on the first of January 2019.

“If there are higher taxes and higher oil prices on the world market, it will be a very difficult situation for the French government while facing this protest movement,” says Perrin.