WASHINGTON - President Joe Biden got a diplomatic blow on Wednesday with the Opec+ cartel's decision to ignore both his efforts at isolating Russia and desperate attempts to hold down fuel prices ahead of midterm elections.
"The president is disappointed by the shortsighted decision by Opec+," National Security Adviser Jake Sullivan and top economic adviser Brian Deese said in a statement.
That sounded like understatement.
Biden has been trying for months to walk an economic and geopolitical tightrope in which he lowers fuel costs for Americans while simultaneously cutting major energy exporter Russia from revenues needed to finance its war on Ukraine.
And with just five weeks before midterm elections where the Democrats hope to cling on to control of Congress, Biden was having some success. Average gasoline costs have fallen by more than US$1 a gallon from politically damaging highs earlier this year, while the US-led Western coalition confronting Russia remains solid going into winter.
So the decision by Saudi-led Opec and a set of Russian-dominated allies, collectively known as Opec+, was a shock.
Saudi Arabia is one of the closest US allies and the biggest single purchaser of top-end US weaponry.
Biden himself spent considerable political capital in July by visiting the kingdom and meeting with de facto leader Crown Prince Mohammed bin Salman, the man US intelligence has identified as approving the 2018 murder of Washington Post journalist Jamal Khashoggi.
White House Press Secretary Karine Jean-Pierre reflected the administration's frustration, saying "it's clear that Opec+ is aligning with Russia with today's announcement".
Senator Chris Murphy, an ally of Biden, was blunter. "I thought the whole point of selling arms to the Gulf States despite their human rights abuses, nonsensical Yemen War, working against US interests in Libya, Sudan etc, was that when an international crisis came, the Gulf could choose America over Russia/China," he tweeted.
In both optics and substance, the decision by OPEC and its allied oil producers underscored the challenges the United States faces in managing its foreign and economic policy at a time when the global economy is at risk of recession, and energy politics has emerged as a key component of the conflict in Ukraine.
The meeting in Vienna was attended by Russia’s deputy prime minister, who is under US sanctions.
It demonstrated anew that, even in an era in which oil should be diminishing in importance as a source of energy, OPEC+ acts in its own self-interests. In this case, sustaining the price per barrel has proved far more important to its members than making Russia pay a price for invading Ukraine.
“This cut was driven by geopolitics, not just market fundamentals,” said Ben Cahill, senior fellow at the Center for Strategic and International Studies. “OPEC+ is pushing back against efforts by oil importers to shape the market, including the price cap on Russian oil, US SPR releases, and coordinated action among buyers. It’s a risky move.”
Price rise looms
Higher fuel prices have already inflicted severe damage on Biden's standing this year. Unlike other areas of inflation, fuel prices are literally emblazoned on large signs at gas stations, while motorists in many cases have no option other than to pay up.
As president, however, there are limits on what Biden can do to fight the trend.
The White House said Biden was ordering another dip into the country's Strategic Petroleum Reserve, with 10 million barrels set to be put on the market next month in an attempt to dampen prices rises.
However, those reserves are fast emptying out after record withdrawals ordered by the administration, starting back in March. The reserves are now at their lowest level since July 1984 and it is not clear when the administration plans to purchase a refill.
The next releases will continue "as appropriate to protect American consumers and promote energy security, and (Biden) is directing the secretary of energy to explore any additional responsible actions to continue increasing domestic production in the immediate term," a White House statement said.
In addition, the administration will "consult with Congress on additional tools and authorities to reduce Opec's control over energy prices," the statement said.
But Andy Lipow, from Lipow Oil Associates, said Wednesday's decision by Opec+ demonstrates "the waning influence of the US on Opec to maintain an adequate supply of oil."
"The US can't release strategic petroleum reserves forever, and eventually it will run out and Opec knows it," he said.
The only solution, in his view, is to get "more oil out of the ground".
That, however, runs against Biden's climate crisis priorities and a major effort to move the country away from oil and gas.
"Today's announcement is a reminder of why it is so critical that the United States reduce its reliance on foreign sources of fossil fuels," the White House said.
The production cut will be smaller in reality than on paper, at around 1 million barrels a day.
Many OPEC+ countries are already pumping below their quotas – a fact that will give US officials some comfort.
But the decision’s political impact is likely to reach beyond its effect on the market.
For MBS, as Saudi Arabia’s crown prince is universally known, the decision marks a return to the oil-fueled confidence that characterised the period before the murder of Jamal Khashoggi.
His economy is on track to be one of the fastest growing in the G20, he just helped broker a Russia-Ukraine prisoner swap, and he was last week named prime minister, expanding his powers on paper and potentially granting him immunity from lawsuits accusing him of ordering Kashoggi’s killing.
Saudi officials said the OPEC+ decision underscores the kingdom’s evolving foreign partnerships, driven in part by perceived slights from Washington.
While some senior US officials have sought to repair the relationship, that hasn’t been enough to outweigh the fissures created partly by the president himself, the Saudis said.
On Wednesday, Saudi Arabia’s energy minister, Prince Abdulaziz bin Salman, refused to discuss the politics of the decision to cut production, saying only: “This is way above our pay grade.”
Asked to justify the decision to cut production in a market where prices remain relatively high, despite dropping from more than US$130 in March, he pointed to the fact that natural gas and coal prices had risen by much more than oil.
For some, the analogy is ominous: the surge in gas and coal prices is the result of what the West sees as Russia’s use of gas a political weapon by curtailing supplies to Europe.
“After gas markets, now oil markets are getting weaponised,” said veteran OPEC-watcher Roger Diwan. AFP, BLOOMBERG, NYTIMES