Analysis: Biden’s punch turned into a slap in the face

So much for getting closer to the Saudis — President Joe Biden’s much-talked-about punch with Mohammed bin Salman during a trip to the Middle East in July turned into something of a slap in the crown prince’s face.

This week’s OPEC+ announcement that it would cut oil production by 2 million barrels a day — projected, most often, by Saudi Arabia and Russia — is already triggering a cascade of toxic geopolitical change.

A number of issues converge here at this epiphanic moment. There’s the European Union (EU), which is suddenly having to figure out how it can still implement its price cap on Russian oil.

There’s oil producer Venezuela, which with an OPEC coup is looking to the United States more as an attractive trading partner than a hemispheric pariah.

There is the prospect of a resurgence of coal as a fuel and its impact on our entire planet.

And then there’s the jump in oil prices, a source of new revenue Russia desperately needs to continue its war in Ukraine, where a lightning counteroffensive is hurting President Vladimir Putin on the battlefield and at home.

a high price

For now, the most immediate consequences will be oil prices and revenues. Designed to spur a reversal of the trend that sent oil prices plummeting to $80 a barrel from just over $130 a barrel in March, the impact on gas pump prices and inflation in the United States in the run-up to elections term of office is already being felt.

Oil monitor Platts pegged the price of oil at $93.73 a barrel on Oct 4, up 11% from $84.63 on Sept. 26, when rumors of an OPEC cut began. to circulate. But that is still below the June 14 peak of $132.06 a barrel.

Analysts at Morgan Stanley raised their estimates for oil prices to $100 a barrel hours after OPEC’s announcement. Any such reversal will inevitably have an impact on gas prices and inflation.

At the same time, the EU seems quite committed to implementing a price ceiling on Russian crude for its 27 member countries. This complex formula – designed to reduce the revenues Putin can raise to continue his war in Ukraine – would penalize any Russian oil transport line by withholding insurance for their cargo or vessels if the price of the oil they transport is above the limit of the HUH.

With OPEC cutting production across the board, this could add to the pain for European customers as oil prices from other oil-producing nations could rise dramatically with supply cuts.

Business partners

At the same time, supply shortages could make the oil Russia is selling at bargain prices to sympathetic nations like China and India, among others, even more attractive. If the EU manages to reduce the sale of Russian oil to its members, there will be much more production available for sale elsewhere.

And if world oil prices rise as a result of supply cuts, the ready source of Russian oil at reduced prices would be a boon for the economies of these countries.

Simultaneously, the US has begun to look even more closely at other sources of oil supply to offset the OPEC deficit. The Wall Street Journal reported that the Biden administration may be prepared to ease sanctions on Venezuela and allow Chevron to start exporting from the country to the US again, with some political conditions, such as President Nicolás Maduro opening talks with opposition leaders.

This would have little immediate impact, but could eventually be part of a broader pattern of shifting the world’s oil imports away from Russia. In fact, at the height of the 1970s, Venezuela was producing 3.8 million barrels a day, according to Forbes. In August this year, that figure dropped to 723,000 barrels, according to the Warsaw Institute.

In addition to oil, European countries are already getting rid of Russian gas since the invasion of Ukraine. (In early September, Russia indefinitely cut off gas supplies to Europe via the Nord Stream 1 pipeline, citing an oil leak.)

With such substantial restrictions – and now the rising price of oil, which would have been a substitute for Russia’s natural gas in some parts of the world – other energy sources are suddenly starting to look much more attractive, with potentially catastrophic impacts on the environment. .

Countries like Germany, France and the UK are already restarting or considering a return to coal plants – one of the most polluting fuels – to help fill the gas shortage. OPEC cuts and price increases could only accelerate this environmentally dangerous trend.

The US-Saudi relationship

OPEC production cuts could – indeed, should – backfire on Saudi Arabia and its complicit partners. It is past time for the US and its allies to step up the pressure. Congress is already considering legislation called NOPEC (No Oil Producing and Exporting Cartels) that would allow the US to revoke the sovereign immunity of OPEC oil producers such as Saudi-owned Aramco and allow the US Attorney General to sued for damages in federal court.

In addition, there is growing sentiment in Congress to re-evaluate the United States’ broader relationship with Saudi Arabia and especially the large arms sales to the kingdom.

Representative Ro Khanna went further, telling CNN that he wants the Biden administration to halt all sales of aviation parts — and stop Raytheon and Boeing from making Saudi sales. Both are major arms suppliers to Saudi Arabia.

And Representative Tom Malinowski told Politico Playbook this week that he will introduce legislation to “compel the removal of US troops and missile defense systems” from Saudi Arabia and the United Arab Emirates. The language comes directly from a 2020 GOP-sponsored bill – making it that much harder for Republicans to vote ‘no’.

With Saudi Arabia preparing to resume a deadly and protracted war in Yemen against Iranian proxies (following the end of a truce earlier this month), the Saudis urgently need material that the US can provide and that few other countries – certainly not. Russia these days – can deliver.

Clearly, the Saudis have launched a challenge alongside one that has long been on Russia’s table. It’s time for the US to react. From my visits to the realm for decades, I know that its leaders respect one characteristic of both allies and enemies – strength and willingness to stand by their convictions.