The US pursuit of “energy independence,” let alone “energy dominance,” did not last long. Like presidents before him, Joe Biden finds himself in the position of first pleading with OPEC states, then expressing anger at their decisions on oil production, Robin Mills, CEO of Qamar Energy and author of The Myth of the Oil Crisis, writes for Asia Times.
The meeting in Vienna of the OPEC+ group of leading oil exporters on October 5 decided to cut its production target by 2 million barrels per day, which will amount to about 900,000bpd of real reductions. This follows a 100,000bpd cut from the previous month’s confab, which itself came after months of steady increases as consumption rebounded from the Covid-19 pandemic.
The group is worried about demand and the world economy, given high inflation, interest-rate rises, and the economic slowdown in China. Oil prices had dropped sharply from almost US$124 per barrel in June to $84 per barrel just ahead of the meeting.
But the US lobbied hard against cuts, wanting to contain prices and inflation ahead of the crucial midterm elections on November 8. It argued that the market remained tight and that the decision could have been put off for a month to allow for the impact of the European ban on Russian oil imports on December 5. The Biden administration’s pleas were unavailing.
Seeking energy security
The US “shale revolution,” which from 2010 unlocked billions of barrels of oil and trillions of cubic feet of gas hitherto inaccessible, led to heady predictions that the US no longer needed to pay attention to the Arab Gulf region. As a result, Washington believed it could draw down its military and diplomatic presence there in a “pivot to Asia.”
As it had since Richard Nixon’s Project Independence, the US saw energy security in terms of self-sufficiency. Energy experts warned repeatedly that the country remained connected to the world market.
But after a decade of fruitless Middle East wars, presidents sought to run foreign policy on the cheap by outsourcing it to the energy business. Barack Obama’s tenure was buoyed by sharply rising US oil and gas output. He eventually lifted the long-standing ban on exports of crude oil, containing global prices. This enabled stringent sanctions on Iran in pursuit of a nuclear deal, and covered for the loss of Libyan output during and after the 2011 overthrow of Muammar Gaddafi.
The Gulf producers’ struggle to compete with shale caused the oil-price crash in late 2014 and OPEC price war, then the formation of the OPEC+ alliance with Russia and other important non-OPEC producers in late 2016. Saudi Arabia saw that the Organization of the Petroleum Exporting Countries could not fight both shale and Russia simultaneously.
Donald Trump was mainly able to coast through his presidency on moderate prices. He put pressure on Gulf states to raise production to support renewed sanctions on Iran, only to blindside them in November 2018 with waivers that pushed down prices.
But, reversing course when oil prices crashed early in the pandemic, he threw his weight behind a renewed production deal in calls with Vladimir Putin and Crown Prince Mohammed bin Salman, intended to rescue the domestic US industry.
The shale revolution now seems to have run its course as investors prefer cash to growth. US oil output will continue rising for some years, just not fast enough to meet global demand expansion or cause a price crash.
Oil companies blame an unfavorable investment environment on the US Democratic Party, although nothing tangible Biden has done will have any significant impact on near-term production. Nevertheless, constrained by the environmentalist agenda of his party, Biden is unlikely to shift his rhetoric enough to encourage more activity from the Texas oil barons or their Wall Street backers.
Oil politics
The US remains a significant net oil exporter, as it has not been since the late 1940s. But it has lost the role of swing producer it held for the decade from 2010. High oil prices are good for the US economy on aggregate, and especially for investors. But they are bad for consumers, for inflation, and for the majority of states that are not major producers – most of those Democrat-voting or electorally competitive.
So the US administration responded furiously to the cuts, and blamed Saudi Arabia. Washington pointed to dangers to the world economy, and to the boost to Russia.
Riyadh, by contrast, defended its position and was eventually supported by the United Arab Emirates, Bahrain, Oman and Iraq. It pointed to the concerns over oil demand and low levels of spare capacity. The Saudi Foreign Ministry said the decision was unanimous (as OPEC decisions must be), “purely economic,” and aimed at limiting price volatility.
The White House will fall back on old tools, and try out some new ones. Biden has used the Strategic Petroleum Reserve far more actively than under any past president, as a price management mechanism. The lunatic concept of banning US oil exports again has circulated. A renewed Iran nuclear deal, which would restore Iranian oil exports, seems off the table for now.
Otherwise, Washington’s main leverage on OPEC+ and specifically Saudi Arabia lies outside the energy field, in denying arms sales and the provision of defense. If the US is ever to be “energy dominant,” it has to adapt to returning to energy submission. But the superpower has other foreign-policy tools, and the Gulf oil producers need to beware how an angry Washington might use them.
