OPEC was always going to mess with oil prices. Was Biden’s team naive?

By | October 8, 2022

Jonathan Guyer writes:

On Wednesday, the energy price-fixing cartel OPEC+ announced that it was making a major reduction in oil production. That will end up meaning less oil on the market, and an increase in the price of gasoline for consumers worldwide, at a time of high inflation and recession fears. It is a net positive, though, for the two countries that produce the most oil in OPEC+ — Russia and Saudi Arabia.

President Joe Biden has called the move a “disappointment.” Perhaps more accurately, it’s an embarrassment for an American leader who has sought to enhance relations with the kingdom after a rough start. On top of that, it’s a sign of the limits of America’s ability to determine the global landscape amid its ongoing proxy war against Russia in Ukraine, in which Saudi Arabia has played both the US and Russia against one another.

For weeks in advance of the OPEC+ announcement, key personnel from the Biden White House were scrambling to convey to Saudi Arabia, the group’s most influential member, “how high the stakes are,” a US official told CNN.

The administration’s failed pressure campaign comes about three months after Biden’s first visit to the kingdom as president. That trip was significant because Biden had initially distanced himself from Saudi Arabia. For his first 18 months in office, he had informally decided not to meet Prince Mohammed bin Salman bin Abdulaziz, or MBS, building on his commitment during the presidential campaign to ostracize Saudi Arabia.

There was good reason to avoid MBS: The CIA had determined that he had ordered the killing of Washington Post writer Jamal Khashoggi in 2018, and since the Obama administration the Saudi prince had deepened a vicious war in Yemen. But eventually, Biden capitulated to a visit.

While in Saudi Arabia this summer, senior Biden officials argued that the Saudi trip was not only or even mostly about oil, even as gas prices in America in the spring had hit near-historic highs. They provided myriad reasons Biden went: for Israel’s security, for regional security, and to reestablish a partnership with Saudi Arabia that would prove practical as crises hit in various parts of the world. The trip, the Biden administration wanted us to believe, was about everything but oil. It was a contradiction in terms, however. Much of Saudi Arabia’s geopolitical clout and power stems from its massive oil reserves and the wealth that comes with it.

Saudi Arabia did not commit to pumping more oil in response to Biden’s visit to the country, and has spurned the US again. It’s not the first time that the US has had difficulty securing Saudi Arabia’s support. Of course, the OPEC cartel has a fraught history with the US. Today, the energy market amplifies the geopolitical power of the kingdom and a few other oil producers, even as its members like Russia and Saudi Arabia don’t always agree.

As the impact of the OPEC+ announcement reverberates, one has to ask: Why is the US so naive about Saudi Arabia? [Continue reading…]

The Wall Street Journal reports:

The Biden administration is preparing to scale down sanctions on Venezuela’s authoritarian regime to allow Chevron to resume pumping oil there, paving the way for a potential reopening of U.S. and European markets to oil exports from Venezuela, according to people familiar with the proposal.

In exchange for the significant sanctions relief, the government of Venezuelan President Nicolás Maduro would resume long-suspended talks with the country’s opposition to discuss conditions needed to hold free and fair presidential elections in 2024, the people said. The U.S., Venezuela’s government and some Venezuelan opposition figures have also worked out a deal that would free up hundreds of millions of dollars in Venezuelan state funds frozen in American banks to pay for imports of food, medicine and equipment for the country’s battered electricity grid and municipal water systems.

U.S. officials said details are still under discussion and cautioned that the deal could fall through, because it is contingent on Mr. Maduro’s top aides resuming talks with the opposition in good faith.

“There are no plans to change our sanctions policy without constructive steps from the Maduro regime,” Adrienne Watson, spokeswoman for the National Security Council, said.

If the deal goes through and Chevron, along with U.S. oil-service companies, are allowed to work in Venezuela again, it would put only a limited amount of new oil on the world market in the short term.

Venezuela was once a major oil producer, pumping more than 3.2 million barrels a day during the 1990s, but the state-run industry has collapsed over the past decade because of underinvestment, corruption and mismanagement. Sanctions leveled by the Trump administration further dented production and forced Western companies out of the country.

Any shift in U.S. policy that brings back Western oil companies would send a psychological signal to the market that more supply is on the way, the people said. Word of a possible U.S. rapprochement with Venezuela is emerging just as OPEC+ countries led by Saudi Arabia and Russia agreed to slash production in response to sagging oil prices, angering the Biden administration. [Continue reading…]

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