Relations between the United States and Saudi Arabia reached a new low on Wednesday, as the Saudi-led OPEC voted to cut oil production amid rising global energy prices.
The decision marked a breakthrough for Russia, which coordinates oil policy with OPEC and seeks to boost the value of its exports. It also comes a month before midterm elections in the United States, where high energy prices could be a major issue. Officials of the Biden administration expressed disappointment in this action and indicated that they are willing to work with Congress on legislation that will help the government bring an antitrust suit against the oil giant.
Two members of Congress have said they will introduce legislation to remove US troops and military equipment from the country.
“This will cause many people in the United States to reevaluate the US-Saudi relationship,” said Ben Cahill, a senior fellow at the Center for Strategic and International Studies. “Perceptions have changed.”
Analysts said the moves highlighted the depth of the rift between Washington and Riyadh. The interests of these two subjects were once aligned: Saudi Arabia exported barrels of oil around the world in exchange for U.S. security guarantees. But in recent years, relations have deteriorated due to the differences of the Arab Spring, the murder of Jamal Khashoggi and the incompatible methods and problems of power.
“The market has moved on, things have changed a lot,” Cahill said. “Saudi Arabia has a wide range of business relations and interests. Its relations in Asia have become very important, and I think the US feels more free to move without dependence on Gulf oil production .”
Analysts said OPEC’s move to cut production appears to be a response to Europe’s impending ban on Russian oil sales, set to take effect in December, as well as efforts by the Biden administration and its allies. European rate setting. Russian green. Efforts by oil-using countries to try and set oil prices represent a direct threat to OPEC’s ability to regulate oil markets, they said.
The move will reduce OPEC oil production by 2 million barrels per day, or about 2 percent of global oil production. Many analysts expected the real cuts to be muted, as many OPEC countries are already failing to meet their stated production targets. Goldman Sachs, in a note to clients, said it expected the cuts to result in output falling 400,000 to 600,000 barrels a day below previously expected levels. ClearView Energy Partners estimated the actual decline at 1 million barrels per day.
Oil prices have fallen since the summer, when the national price of gasoline topped $5 a gallon. They had fallen steadily in recent months, before climbing slightly last week.
OPEC’s decision is likely to put more pressure on oil prices, analysts said. Oil production in rich countries that make up the Organization for Economic Co-operation and Development is 8 percent below the five-year average leading up to the outbreak, ClearView said, citing figures from the International Energy Agency.
“Historically, OPEC has been cutting production due to weak demand, yet it has never used it to cut such a tight market, with production at historically low levels,” analysts said. Goldman wrote.
Roger Diwan, an analyst who tracks oil markets at IHS Markit, said OPEC had economic reasons to cut production amid rising interest rates in the United States, high energy prices in Europe and rising fears. of the collapse of the world. But the style of the announcement points to a broader political message, he said.
OPEC has been meeting almost since the start of the crisis. But the cartel chose to make the announcement Wednesday in a one-on-one meeting in Vienna with Russian Deputy Prime Minister Alexander Novak. Russia has been shunned in Europe since it invaded Ukraine, while the European Union wants to reduce its dependence on Russian energy supplies.
“From the control of the market, the technical part, there is no reason to be so big at this time when you are 30 days away from a big panic because we don’t know the outcome of the EU. oil embargo,” said Diwan. “They wanted that political feeling.”
He called Russia “an actor, not a bystander” in the decision, saying Moscow may have agreed to continue coordinating its oil production with OPEC in order to reduce production.
Saudi Arabia also seems to be motivated by its disagreement with the Biden administration, which began during the Obama administration’s support for the protesters in the Arab Spring. The Saudis have been growing even more since then, when US intelligence agencies concluded that Saudi Crown Prince Mohammed bin Salman ordered the murder of Khashoggi, a Washington Post reporter.
Biden visited Saudi Arabia this summer as part of an effort to convince bin Salman to increase production and lower oil prices. He came back empty-handed.
Diwan said the timing of OPEC’s announcement highlighted concerns about Biden in Riyadh.
“To do that a month before the U.S. election is not a crime,” he said. “There is a political game being played and it is over.”
Existential threat
Biden administration officials were quick to express their displeasure with the OPEC decision. See the article : Member Status News | newsroom | US Senate Committee on Finance.
In a joint statement, national security adviser Jake Sullivan and National Economic Council Director Brian Deese said Biden was “disappointed by the short-sighted decision.” They promised continued releases from the Strategic Petroleum Reserve, with another 10 million barrels in November and said the administration would “discuss with Congress other tools and authorities to reduce OPEC’s control over prices.” of power.”
Many analysts interpreted this statement as a warning that the administration could support the NOPEC bill floating in Congress, which would enable the attorney general to sue the oil cartel on antitrust grounds. In the letter, ClearView said the bill could attract enough support to overcome a filibuster. While the administration would not be required to sue OPEC if the bill becomes law, the mere existence of it would create a “shocking effect” and could prompt OPEC to consider cuts and lead to a dramatic sell-off in the markets. of oil, the research firm said. .
“At least we can suggest that even introducing NOPEC is more than a “sorry,” ClearView wrote.
OPEC officials framed their decision as an effort to stave off a potential recession and provide the long-term certainty needed to drive investment in oil markets. Prince Abdulaziz bin Salman, the Saudi Energy Minister, questioned whether OPEC is manipulating oil prices.
“A very provocative question,” the Saudi minister told reporters during a press conference, in comments reported by POLITICO. Show me where the action is.
OPEC’s short-term production war comes as the United States and Europe ponder a long-term transition away from fossil fuels. The effort is seen as an existential threat by OPEC members, who use oil revenue to boost their economies and fill government coffers, analysts said.
OPEC countries have responded to the threat in different ways. The United Arab Emirates has sought to increase production as part of a plan to raise funds for the transition to clean energy sources. Saudi Arabia’s response has been limited, analysts said, even as the government continues to explore key minerals needed for the energy transition.
Riyadh’s challenge is that supply cuts could raise energy prices and increase incentives to switch to alternatives, Diwan said. This is especially true in emerging markets, which are among OPEC’s most important markets, he said.
“If they want to secure the long-term future of oil, you should allow these countries to increase their long-term demand for oil,” Diwan said. “If you speed up the technological transition away from oil and reduce the costs of that transition, the whole world will be able to afford it – not just the rich countries.”
This story also appears on Climatewire.
