Is Saudi Arabia trying to sabotage Biden?

Is Saudi Crown Prince Mohammed bin Salman trying to sabotage Joe Biden’s reelection bid? It’s quite possible. The Saudi leader, known as MBS, has made clear his disdain for President Biden, and his fury over insults lobbed at him by this White House. He is a powerful force behind the current surge in oil prices, which could — if sustained — contribute to Biden’s defeat.

Oil prices are soaring — up 19 percent since the start of the year. Since they lag behind crude oil, gasoline prices have only jumped 14 percent so far. But, unless oil markets take a giant step backwards, prices at the pump will steadily increase into the summer driving season and pummel Biden’s popularity.

This happened two years ago. As gasoline prices rose to an all-time high of $5 per gallon in June 2022, Biden’s approval ratings tanked. He started the year at 43.2 percent approval and by the July 4 holiday, when millions of Americans take to the roads, he had slipped to 38.1 percent.

Why are oil prices rising? There are a number of factors, including Russia’s war against Ukraine, turbulence and fear of escalation in the Middle East and also some revival in China’s growth and demand for energy. But it is the ongoing production cuts agreed to by OPEC+, engineered in large part by Saudi Arabia, that are really lifting prices.

In recent days, OPEC+ held a ministerial meeting at which members recommitted to continuing voluntary cuts of 2.2 million barrels per day until June. The decision had been expected, but nonetheless signaled that Saudi Arabia and Russia, the world’s leading oil exporters, are determined to keep prices high. MBS is the key decision-maker for Saudi Arabia; by virtue of the kingdom’s unique position as “swing producer,” he is also the dominant voice within OPEC+.

For Russia, high oil prices are critical to winning its battle with Ukraine. Biden, after Putin invaded its neighbor, boasted that the U.S. and its allies were imposing draconian penalties to hold Moscow accountable. Biden said, “The totality of our sanctions and export controls is crushing the Russian economy.” He cited the sharp decline of the ruble and predicted the Moscow stock exchange would “probably collapse.”

Since that day, one month into the conflict, the ruble has rebounded 47 percent and the main Russian stock index is up 37 percent, only 25 percent below its all-time high. How has Russia managed? By teaming with the Saudis to curtail production and boost oil prices.

For the Russians, high oil prices are a matter of survival. For the Saudis, skyrocketing oil costs are essential to fulfilling the grandiose economic vision of MBS. They are also key to exacting revenge against Biden, who early on went out of his way to insult the young heir apparent. The White House indicated it intended to “recalibrate” its relationship with the Saudis, and especially with MBS, who had worked successfully with the Trump White House.

Having vowed on the campaign trail in 2019 to make Saudi Arabia “the pariah that they are,” Biden initially shunned the crown prince, agreeing to speak only to his ailing father King Salman. In addition, the White House released a report accusing MBS of responsibility for the death of journalist Jamal Khashoggi and terminated sales of offensive weapons needed by Saudi Arabia to conduct its war in Yemen. Moreover, Biden rescinded Trump’s terror designation for the Houthis, despite the group having attacked Saudi oil infrastructure.

Worse, the Biden team attempted to revive the nuclear deal with Iran, Saudi Arabia’s bitter enemy.

Early in Biden’s presidency, the Saudis surprised oil traders by leading OPEC to not increase oil output, despite rising demand; prices jumped 4 percent. It was MBS’s first salvo, reminding Biden of the importance of the U.S.-Saudi alliance, which has been in place since 1945, and of his own ascendance.

When oil prices soared in 2022, Biden went to MBS for help, begging him to increase output. But he would not shake hands with the crown prince, offering instead a widely-mocked “fist bump.” That’s how idiotically Biden has managed this critical relationship.

In coming months we will find out just how critical the relationship is. If oil prices continue to march higher, Biden will no doubt pull out all the diplomatic stops to get OPEC+ to open the spigots. Last time, he dampened rising prices by draining the Strategic Petroleum Reserve; that emergency storage is down to 362,000 barrels, the lowest level since 1983. Biden cannot go there again.

Other factors will certainly influence Biden’s standing in coming months, but oil prices could prove key as they drive inflation higher. In a recent poll, 22 percent of voters ranked inflation as their top issue; rising prices at the pump will keep the problem top of mind even if the overall inflation level continues to moderate. The same survey showed only 38 percent of voters describing the economy under Biden as good, compared to 65 percent saying it was good under Trump.

Rising oil prices will likely complicate Fed Chair Jay Powell’s expected pivot to cutting rates, which Wall Street expects. The Fed has engineered one of the most aggressive rate-hiking cycles ever, and is poised to reverse course once inflation recedes to its stated 2 percent goal. Stocks have rallied strongly in anticipation of that easing; rising oil prices could prove a speedbump.

Energy prices are volatile, so they are excluded from the data that the Fed studies for signs that inflation is under control. But if oil prices remain high for several months, they will bleed into the cost of shipping, airline tickets, plastics and innumerable other items. Powell clearly intends to follow through with his projected cuts, but has also said the Fed will be “data dependent.” Oil prices will be a critical part of the data.

And MBS could make sure those prices, and interest rates, stay “higher for longer.” That will not help Joe Biden.

Liz Peek is a former partner of major bracket Wall Street firm Wertheim & Company.