President Biden is already boosting oil prices, and he’s barely gotten started.
Biden is frantic to help Americans hard-hit by COVID-19, or so he says. But while his $1.9 trillion “American Rescue Plan” would send cash to millions, much of that windfall may go to pay for higher gasoline and home heating prices.
Americans should blame Biden, but not for the reason you might think. Biden’s attack on U.S. energy producers, starting with his freeze on federal oil and gas leases, will assuredly take a toll on output down the road and cause prices at the pump to rise.
But today, Biden has pushed those prices, which were already rising because of severe weather, even higher by gratuitously alienating Saudi Arabia. The Gulf kingdom just surprised energy markets by announcing it would not raise oil output, despite developing supply constraints and rising prices. Oil prices jumped on the news, popping 4 percent to pre-pandemic levels for the first time in a year; the surge rattled markets already nervous about rising inflation.
The Saudis are reminding Biden that they can be a valuable ally or a formidable foe.
In his fever to undo every vestige of the Trump presidency, Biden has undermined the extraordinary progress made by the previous administration towards peace in the Middle East, including by “recalibrating” our relationship with Saudi Arabia. The signing of the Abraham Accords between Israel and the UAE, Bahrain, Sudan and Morocco marked an undisputed breakthrough in opening relations among bitter enemies and also in ring-fencing a belligerent Iran.
Instead of attempting to build on that achievement, Biden has tried to bury it. Upon taking office President Biden immediately froze arms sales to the UAE, which had been promised as part of the deal. He next halted military aid to the Saudi war in Yemen and rescinded the terrorist organization designation applied to the Houthis by President Trump, emboldening that group to step up their attacks on Saudi Arabia.
Also, it took a full month for Biden to call Israeli Prime Minister Benjamin Netanyahu, finally speaking to the leader of one of our strongest allies only after reaching out to more than a dozen other heads of state.
All these gestures made it clear, not that “America is back,” as Biden has proudly announced, but that America is going backward…fast.
The crowning blow to our improved realignment of interests in the Middle East, however, was Biden’s decision to insult the de facto ruler of Saudi Arabia by releasing an intelligence assessment that Crown Prince Mohammed bin Salman (MBS) was responsible for orchestrating the murder of Jamal Khashoggi. This affront followed the White House announcing that Biden would not speak to MBS, as he is called, but rather, communicate with his father, the ailing Saudi King Salman bin Abdulaziz.
The Khashoggi report contained nothing new; the “reveal” simply signaled Biden’s disdain for the controversial leader and disagreement with everything Trump, who had a close working relationship with Saudi Arabia’s next ruler.
The Abraham Accords shocked the world; even the New York Times’s Tom Friedman recently hailed the “game-changing” breakthrough, writing that “something big seems to be stirring.”
Many hoped that Saudi Arabia might also join the Accords, which would, Friedman concludes, make the agreement “one of the most significant realignments in modern Middle East history.” Most likely, Biden has killed that possibility.
Offending Saudi Arabia scratches a Leftist itch; indeed, human rights groups complain that Biden did not punish MBS directly, after promising to do so on the campaign trail. But it will not help American consumers.
Saudi Arabia still occupies the enviable position of swing oil producer; they are currently producing about nine million barrels of oil per day, down from 9.8 million barrels in 2019. The country has the capacity to produce between 11 and 12 million barrels, thus allowing it to flood the market when prices get too high. Because the nation is wealthy, it also can cut output to prop up prices, as it did last year when, due to COVID-19, energy demand collapsed.
In other words, despite the growth in U.S. oil output in recent years, the Saudis still run the show. And MBS runs Saudi Arabia. Last year, a personal confrontation with Vladimir Putin drove him to push a price war with Russia; almost certainly, the recent decision to drive prices higher was also his.
Gasoline prices had already posted sizable increases, with the national average price rising for eight weeks in a row to $2.71 a gallon as of March 1, up from $2.40 at the end of January and against last May’s price of $1.79.
Some are now predicting that prices will top $3.00 per gallon as we approach the summer driving season. A driving season that will see millions return to the roads as the COVID-19 crisis eases.
Travelers this summer may get a preview of what Biden’s anti-oil policies will come to mean for their pocketbooks. Right out of the gate, Biden curtsied to the climate warriors by canceling the Keystone Pipeline and, more consequentially, pausing the leasing of federal lands for oil and gas development. Federal lands account for about 22 percent of U.S. oil production.
It is clear those are just his opening moves; Biden’s appointments of progressives to important Cabinet posts and insertion of climate issues into every agency’s agenda will doubtless drive U.S. oil and gas investment and production down over time. Consequently, prices will increase.
In 2012, President Obama suffered one of the worst-ever drops in his approval rating when gas prices spiked. According to a NYTimes/CBSNews poll at the time, “54 percent of poll respondents believed that a president can do a lot to control gas prices…” and had punished Obama accordingly.
In Biden’s case, that 54 percent is correct.
Liz Peek is a former partner of major bracket Wall Street firm Wertheim & Company. Follow her on Twitter @lizpeek.