Global oil supply is set to tighten, intensifying concerns over soaring inflation after the Opec+ group of nations announced its largest supply cut since 2020.

The move has widened a diplomatic rift between the Saudi-backed bloc and Western nations led by the US, which worry higher energy prices will hurt the fragile global economy and hinder efforts to deprive Moscow of oil revenue following Russia’s invasion of Ukraine.

Oil prices held near threeweek highs on Thursday after Opec+ agreed to tighten global crude supply with a deal to cut production targets by 2 million barrels per day (bpd).

Brent crude futures edged down 16 cents, or 0.2 per cent, to $93.21 per barrel by 1020 GMT after settling 1.7 per cent up in the previous session.

The agreement between the Organization of Petroleum Exporting Countries (Opec) and allies including Russia, a group known collectively as Opec+, comes ahead of an European Union embargo on Russian oil and would squeeze supplies in an already tight market, adding to inflation.

“We believe that the price impact of the announced measures will be significant,” said Jorge Leon, senior vice-president at Rystad Energy. “By December this year Brent would reach over $100/ bbl, up from our earlier call for $89.”

Opec’s leader Saudi Arabia said it was merely reacting to the soaring interest rates in the West where the central banks such as the US Federal Reserve are “belatedly” reducing liquidity, triggering a dollar rise and making oil cheaper.

Washington accused Opec of siding with Russia and called the decision short-sighted saying the world was already suffering from high energy costs due to Russia’s invasion of Ukraine.

The White House said President Joe Biden would continue to assess whether to release further strategic oil stocks to lower prices.

“Saudi, UAE (the United Arab Emirates) and Kuwait are likely to take up most of the burden of cuts,” said Tilak Doshi, managing director of Doshi Consulting, who was previously with Saudi Aramco.

“It’s a slap on Biden’s face by Opec+,” he said, adding that ties between Russia and Saudi seem increasingly tight.

US officials have spent more than a week in discussions with their counterparts from oil-producing countries in West Asia, seeking to minimize production cuts by Opec+ in an effort to keep global oil prices from rising drastically.

The administration officials have been reminding their counterparts that the United States plans to boost global oil demand in the near future by purchasing oil at fixed prices in order to refill the nation’s Strategic Petroleum Reserve.

Karine Jean-Pierre, the White House press secretary, told reporters this week that the administration had no plans to continue the releases after the end of the month, when the effort is scheduled to expire.

The US, meanwhile, may loosen sanctions on Venezuela so Chevron Corp can pump oil in the country if Caracas takes steps towards restoring democracy, according to the Wall Street Journal.

Oil market watchers said that based on pure maths and Opec+’s latest production data Russia was indeed set to benefit most from the decision.

Moscow won’t have to reduce a single barrel of output as it is already producing well below the agreed target while benefiting from higher oil price which will be achieved through cuts mainly by Opec Gulf producers.

“The winner is Russia while the loser is the global consumer who does not need higher energy prices going into an economic slowdown,” said Ole Hansen from Saxo bank.

The move by OPEC+ prompted warnings from oil-importing emerging markets, some of which have become particularly vulnerable to price shocks amid recent global supply snags.

For India, this is bad news as a fall in oil prices had helped it cut down on its import bill and limit losses of PSU fuel retailers.

US-Saudi rift widens

■ Opec+ on Wednesday reduced daily output by 2 million barrels daily. Oil prices have started to rise, fanning fears of a surge in inflation

■ US has accused the oil cartel led by Saudi Arabia of siding with Russia. US to assess further release of crude from its stockpile.

■ Washington reportedly may ease sanctions on Venezuela enabling Chevron to pump oil and bring down pump prices in the US

■ Saudi Arabia says action by central banks in the US has raised interest rates and jacked up the value of the dollar, which in turn is hurting oil revenues

■ Analysts said Russia will be a beneficiary as most of the output cuts will be borne by the Gulf producers. Moscow will actually benefit from higher crude price