Biden, OPEC and the Truth About Consequences

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Consequences. President Joe Biden routinely trots them out when he wants to appear formidable in speeches that address the actions of rogue nations.

But now his promises of consequences against individual countries—Russia, China and Saudi Arabia, to name a few—are running headfirst into the consequences of others’ actions.

Amid skyrocketing fuel prices last fall, Biden asked OPEC to open its taps. Instead, the group sent a message. OPEC, in December, stuck with its previous plan of slowly unwinding pandemic-related production cuts.

The irony of Biden’s ask was not lost on the group, which essentially told Biden—who has based much of his presidential legacy on a low-carbon future—to increase oil flows in his own country.

But U.S. producers are more beholden to their investors than the politicians who come and go every few years. And they continue to hold the line on disciplined volumes.

When Russia began its invasion of Ukraine in February, Biden warned Russian President Vladimir Putin that “he and his country will bear the consequences.”

Biden and Congress punished Putin via a series of sanctions.

Now OPEC and its affiliate nations, one of which is Russia, are instituting their own set of consequences on the rest of the oil-dependent world. The OPEC+ move to take 2 MMbbl/d out of circulation is a large enough supply chunk to raise prices again, helping Russia finance its war on Ukraine while exacerbating the fuel deficit throughout Europe and global inflation.

What’s Biden going to do about it?

“There’s going to be some consequences for what they’ve done with Russia,” Biden said in an interview with CNN, adding that he believes it’s time for the U.S. to reevaluate its relationship with Saudi Arabia.

There’s not much that Biden can do without Congress and not much time before the midterm elections, which may upend his slim Democratic majority there. If Democrats can maintain an upper hand on Capitol Hill, they do have a variety of tools to make the Saudis’ apparent alliance with Russia less cozy.

However, the U.S. has options to bring Saudi Arabia back to camp, said Jim Krane, Middle East energy expert at Rice University’s Baker Institute for Public Policy.

“We’ve got a very intertwined economic, diplomatic and military relationship with Saudi Arabia,” he told Oil and Gas Investor. “There’s all sorts of tools there—any number of which can be used.”

But, as for affecting the prices at the pump, there is actually very little the president can do.

“Presidents act like they can do something about it, and they take the blame for when it goes wrong and they get credit for when it goes their way, even though the things they do have very little influence on it,” Krane said. “Other than jawboning the Saudis.”

Meanwhile, crude oil maintains its near-monopoly on transportation, Krane said. Americans’ favor for large inefficient vehicles exposes the country to the kind of geopolitical game of risk currently being played.

Since the 1940s, the U.S. and Saudi Arabia have enjoyed a cooperative relationship, but there are increasing signs of strain. Former President Barack Obama made two trips to the Middle Eastern nation. Both were low-key affairs, and the lack of fanfare on Saudi television hinted at a chilly reception.

In 2015, the distance between the two countries grew with the death of longtime U.S. ally King Abdullah bin Abdulaziz.

Then, in 2019, President Donald Trump did little to defend Saudi as an ally when Iran bombed the nation’s oil facilities.

Brash and favoring Twitter as a means of communicating policy, Crown Prince Mohammed bin Salman (MBS) has become the de facto leader of the county. His power gained eminence by royal decree in September when King Salman bin Abdulaziz named MBS prime minister.

To be sure, Saudi’s current leadership under MBS appears more closely aligned with the tactics employed in Moscow. And many analysts around the world speculated the latest move was designed to help Russia finance its invasion of Ukraine.

Krane said the next step for OPEC+ could be more nuanced. Much of Saudi Arabia’s social programs and government chest still rely on oil revenues; other OPEC nations are reestablishing their infrastructure; Russia has a war; and some countries want to achieve net-zero emissions.

“The question now is whether Saudi Arabia’s tilt toward Russia will hold over the longer term or whether it is a temporary response to mutual Saudi-Russian disdain for the Biden administration,” he said on Twitter.