Joe Biden’s brutal visit to Saudi Crown Prince Mohammed bin Salman has always been a questionable exercise. Three months later, the American president’s reward has not been the hoped-for increase in oil production, but an overall reduction of 2 million barrels a day by the OPEC+ group which has allied the oil cartel with Russia since 2016. Five weeks before the US midterm elections where gas prices could play a determining role, it looks like a snub. It also suggests that Saudi Arabia is sticking to its relationship with Moscow, even as Vladimir Putin escalates his war in Ukraine. The realm may feel like it is acting in its own interest and that of the cartel, but its actions may prove to be a strategic error.
Saudi and OPEC officials insist the cuts were not politically motivated. Faced with a likely recession in Europe and elsewhere that will depress demand, they say they are trying to put a floor under prices, protect revenue and increase capacity. After falling by a quarter since June, world crude prices are, in equivalent terms, also well below the dizzying levels that natural gas and coal reached thanks to the Russian war.
Yet the decision to cut production is now part of a larger fight for control of the global oil market. Saudi Arabia has been angered by US-led attempts to influence prices. The Biden administration has pushed for Russian oil prices to be capped — to cut Moscow’s revenue — from major G7 and EU democracies. OPEC sees this as an attempt to shift the balance of power towards consuming nations and fears that such a mechanism will one day be deployed against it.
The United States has also embarked on the largest ever release of its strategic oil reserve in an attempt to reduce crude prices and gas prices at American pumps – an intervention as heavy as new OPEC cuts. . Discharges have sometimes run at around 1 million bpd, roughly equivalent to what OPEC’s cuts will be once some members’ underproduction of their quotas is taken into account.
The cartel is trying to regain control of the market and demonstrate that it still has the power to set the price. Saudi Arabia is surely also engaged in a political signal to a US president who branded it an “outcast” after the brutal murder of journalist Jamal Khashoggi, and an administration it says is not supportive enough of Riyadh’s security. In the region. He wants to show that he has other friends, in Beijing, New Delhi and Moscow.
The Saudi crown prince risks overplaying his hand, as he has often done in the past. China, India and Russia are unlikely to extend the same security protection to Saudi Arabia that the United States has enjoyed for several decades. Raising oil prices now can only worsen any impending recession and the resulting destruction of demand. A furious White House hinted that it could now release even more oil from US stockpiles. US lawmakers are calling for the relaunch of so-called Nopec legislation, which aims to crack down on oil cartels.
The lesson for the United States and its Western allies is that its Gulf partners are unreliable on energy, and OPEC is determined to maximize revenue from an asset for which demand must eventually be reduced by Western-led efforts to combat climate change. . In the meantime, it sees no obligation to ensure the energy security of its customers at a lower cost.
Western consuming countries have few short-term, supply-side responses other than investing in additional fossil fuel production that would defeat their climate goals. The long-term answer to all the multiple energy and climate problems they now face is the same: to make real efforts, which have barely begun so far, to reduce the demand for oil – and accelerate the race towards sustainable and green sources.