‘Ghost of Jakarta’ Haunts a Fragile Oil Market
Crude prices have yet to reach bottom after the Saudis pushed for production increase.
A pumpjack in the Permian Basin, a sprawling shale patch that lies beneath Texas and New Mexico.
Photographer: Bloomberg/BloombergHistory doesn’t repeat itself, but it often rhymes — take Saudi Arabia pushing OPEC to boost production, seemingly to humble cartel cheaters.
If it sounds familiar, it’s just coincidence. I’m not talking about last week, but rather 1997, when an OPEC meeting in the Indonesian capital of Jakarta hiked output just as the Asian financial crisis was gaining momentum (and the week Indonesia’s rupiah cratered). Few anticipated how ugly the combination of extra production and slowing economies would be. A year later, oil prices had plunged below $10 a barrel, and the policy mistake lives forever in OPEC’s memory as the “Ghost of Jakarta.”
Today, we are only sowing the seeds of a global economic disruption. But there are many parallels, including the fact that the oil market was weaker than many wanted to believe. If history is any guide, we are far from the oil market’s bottom.
The situation is fluid and much depends on the next steps taken by the White House and the OPEC+ alliance. Still, we can draw a few tentative conclusions.
1) So far, both the White House and, crucially, Saudi Arabia appear to be happy with a more than 10% plunge in crude prices since Donald Trump announced the tariffs. So don’t bet either will step in. Trump needs lower oil prices to offset the inflationary impact of the trade war. And make no mistake, the will and intent of the Saudis last week was to push oil prices lower. Period. That’s why they scheduled an impromptu meeting to announce the production hike hours before Trump launched his trade war, knowing it would maximize the bearish message. Whether the Saudis wanted to teach a lesson to OPEC+ cheaters like Kazakhstan, Iraq and the United Arab Emirates, or they had Trump in mind is unclear. Based on conversations with OPEC+ officials, I believe both factors played a role.
2) It would be a mistake to read 2025 throughout the very same lens of the last oil price war, fought in 2020 between Saudi Arabia and Russia. That price war, combined with the Covid-19 pandemic, sent oil prices below zero. For now, Riyadh isn’t replicating the same bullying tactics it deployed then. If in 2020 the kingdom launched the oil equivalent of a nuclear first strike, this time the military analogy would look more like a commando raid1.