President Biden is very upset with Saudi Arabia. He asked the Arab state to help him out by delaying a cut in OPEC+ production targets until after the midterm elections, and the kingdom turned him down. There will be, Biden warned, “consequences.”
Of course, that’s not how the White House is spinning the story. Contradicting reporting from multiple sources (including the Saudis), an unnamed “U.S. official” declared that linking the requested delay to the voting was “categorically false.”
Democrats hope voters will blame Saudi Arabia when their heating bills soar as much as 28 percent this winter, as the Energy Information Agency recently warned would likely happen, or as gasoline prices continue to climb.
They hope Americans will not wonder why Saudi Arabia can again dictate oil prices for the United States, the world’s largest oil and gas producer and a country that had only recently achieved energy independence for the first time since 1957.
President Biden apparently thought that he could publicly insult the leader of Saudi Arabia, Mohammed bin Salman, as he has done on numerous occasions, with no consequences. How did he think that public humiliation would sit with the prideful and ambitious successor to the House of Saud?
Treasury Secretary Janet Yellen has called OPEC’s decision to reduce oil output targets “unhelpful and unwise” and warned that the move could damage the world’s economy. In an interview, she claimed to be especially “worried about developing countries and the problems they face.”
That’s rich, because the real threat to that block is from the strong dollar. Federal Reserve Chairman Jerome Powell’s efforts to squash inflation via aggressive interest rate hikes has sent the dollar to its highest level in 20 years, leaving lower-income nations struggling to pay their bills or their debts. The International Monetary Fund (IMF) recently warned of global turmoil being caused by the battle against inflation, while the New York Times noted that “a strong dollar is wreaking havoc on emerging market countries and fueling currency weakness in some Asian countries.”
The message from Biden and his Democratic colleagues is that Saudi Arabia has sided with Russia in cutting future production and shoring up oil prices. They are angry that OPEC+ is manipulating oil prices. The former Saudi ambassador to the U.S. countered that charge by explaining that the decision was not made to harm the U.S. but rather to stabilize oil prices to fund investment programs underway in Saudi Arabia.
In other words, OPEC+, and especially Saudi Arabia, the group’s leader, claims it acted in its own self-interest, responding to a sharp slide in oil prices — from $120 a barrel in June to $80 more recently. It also claimed to have kept the White House informed of its projections and calculations.
Americans should understand, however, that the group has the power to do that
today only because Biden has decided to look for oil everywhere on Earth but in our own reservoirs.
Biden’s war on fossil fuels and steadfast refusal to encourage increased U.S. production has to be one of the worst political miscalculations of all time. Production has increased moderately during his time in office but is probably 2 million to 3 million barrels per day short of where it should be at current prices.
An extra 2 million or 3 million barrels per day of production could tip the balance today, bringing prices down and denying Saudis control of the market. That’s what Biden has left on the table.
Rather than produce more oil, Biden has depleted our Strategic Petroleum Reserve (SPR) by about one-third since last year, releasing about 1 million barrels per day. Indeed, the only country arguably trying to manipulate oil prices is the United States.
The SPR draw-down was meant to end by Halloween, but the White House quietly extended the program for another month, coincidentally right through the election. Did that decision persuade OPEC to move forward with its production cut? Perhaps.
The reality is that OPEC’s announced target cut will likely amount to a real drop in output of approximately half a million barrels a day (bpd), or up to 1 million bpd. OPEC is not today producing at its stated goal, as some suppliers face production difficulties or, in the case of Russia, problems selling their oil.
Biden knows, and Democrats know, that the price of gasoline is the single most-watched indicator of inflation. For the past year, voters have continually cited inflation as their number one concern, and indicated that they trust Republicans over Democrats to better manage the issue. In these final weeks before Americans decide who should control Congress, just about the worst possible development for Democrats would be soaring oil prices.
That is why Democrats are so unhappy. They are threatening the Saudis with reprisals, such as cutting off arms shipments to the kingdom. Such a move would in effect bolster Iran, the Saudi’s archrival in the region and a declared enemy of the United States. The reason we sell Saudi Arabia armaments is not because we like them, but because decades of realpolitik has meant the U.S. wants and needs a power balance in the Middle East.
Voters should realize that because Joe Biden has stomped on oil and gas production in the U.S., we are now contemplating undoing decades of diplomatic maneuvering meant to keep the volatile Middle East peaceful. That is a high price to pay for tilting an election.
Liz Peek is a former partner of major bracket Wall Street firm Wertheim & Company. Follow her on Twitter @lizpeek.