US President Joe Biden and Saudi Crown Prince Mohammed bin Salman arrive for a family photo shoot during the Jeddah Security and Development Summit (GCC+3) at a hotel in the Red Sea port city of Jeddah in Saudi Arabia on July 16, 2022.
Mandel Ngan | Afp | Getty Images
President Joe Biden is angry at Saudi Arabia for its decision to cut oil production alongside its OPEC allies against the wishes of the United States, and he has made no secret of it.
With the global economy on a knife edge and energy prices soaring, Washington sees the kingdom’s move — which it has taken in concert with Russia and other oil-producing nations — as a blatant show of disdain for siding with Moscow.
Oil producers group in early October Announced the largest supply cut since 2020to 2 million barrels per day as of November, which its members say is designed to spur a recovery in crude prices to counter a potential drop in demand.
For this, Biden said in an interview with CNN on Tuesday that there would be “consequences.” He did not go into more detail about what those consequences would be.
But what are the Biden administration’s options, and could they backfire?
Gun laws and antitrust
The Saudi-US relationship was founded, in general, on the principle of energy for security. Since the 1940s, Washington has provided billions of dollars in military and security aid to Saudi Arabia. But in recent years, and particularly since the Obama administration began making diplomatic breakthroughs with Iran, Riyadh feels that the United States’ commitment to its security has waned.
“The reality is that neither side has delayed their end of the deal for nearly 10 years now,” Michael Stephens, associate fellow at the Royal United Services Institute in London, told CNBC.
“And what you see, I think, are permanent fissures in the relationship that are based on the fact that neither side really sees the same amount of strategic benefits in the other as they did 20 years ago,” Stephens said, adding that Saudi Arabia and OPEC cut oil production “A reflection of that.”
Possible “consequences” that Washington could put into effect include cutting its military support to Saudi Arabia, and pursuing OPEC with US laws.
File photo of bombs containing Patriot missiles to intercept missiles fired at Saudi Arabia or its neighboring countries.
Greg Matheson | May | Live Photo Collection | Getty Images
Indeed, just a day before Biden’s comments, Senator Bob Menendez, the chairman of the Senate Foreign Relations Committee, demanded that the United States immediately cease all cooperation with Saudi Arabia — including arms sales.
“The United States should immediately freeze all aspects of our cooperation with Saudi Arabia, including any arms sales and security cooperation beyond what is absolutely necessary to defend U.S. personnel and interests,” Menendez said in a statement.
In a previous interview with CNBC, Senator Chris Murphy, D-Conn, asked, “What is the point of looking the other way when the Saudis are chopping up journalists and suppressing political discourse inside Saudi Arabia if the Saudis are effective when the chips are down choosing the Russians over the United States?”
Even Senator Bernie Sanders, taking heed, demanded in a tweet that “If Saudi Arabia, one of the world’s worst human rights abusers, wants to partner with Russia to raise US gas prices, it can get Putin to defend its monarchy. We must pull All US forces out of Saudi Arabia, stop selling weapons to them, and end the oil cartel that sets prices.
Besides blocking military assistance, there are legal channels the US government can follow.
The first is the NOPEC bill, which means there are no oil production and export cartels. This would classify OPEC as a cartel and subject its members to antitrust legislation.
Lawmakers have long debated the bill, which is designed to protect American consumers and businesses from synthetic oil booms.
A Senate committee passed in early May and has yet to be signed into law, but it could subject OPEC countries and its partners to lawsuits to coordinate supply cuts that are driving up global crude prices.
The bill still had to be passed by the Senate and the full House of Representatives and signed into law by the president to take effect. OPEC ministers have Previously criticized the NOPEC billHe warned that it would bring more chaos to energy markets.
Implications for the United States – and crude oil prices
Torbjorn Soltvedt, principal analyst for the Middle East and North Africa at risk, said the decision by OPEC+ – which makes up OPEC and its non-OPEC allies such as Russia – to cut production “highlights the extent to which the Biden administration has lost its ability to influence Saudi OPEC+ policy”. Intelligence company Verrisk Maplecroft.
“The White House has few good options despite Biden warning of ‘consequences’ after the cut,” he said, referring to US lawmakers’ threats to antitrust legislation and the removal of US military assets from Saudi Arabia.
While both tracks would send a clear message, this could backfire for both the US and crude oil prices.
“Both options would threaten to sever already fraught relations, which in turn would put greater upward pressure on oil and fuel prices,” Saltvedt said.
He explained: “In short, the collapse of US-Saudi relations will mean increased Middle East risks for the global oil market and higher oil and fuel prices.” “This is the opposite of what the White House is trying to achieve before the midterm elections in November,” he added.
It is also important to note that a reduction of 2 million barrels per day will not actually be as large as this key figure; Many member states were already well below their individual production ceilings, and Iraq, for example, indicated that it would produce more than its allotted quota.
However, many American politicians have grown impatient with the nature of the US-Saudi relationship, especially since US imports of Saudi oil have shrunk over the years, and more than 80% of Middle East crude oil exports now go to Asia.
This has made a growing number of US lawmakers wonder, Soltvedt said, “Why should the US Navy ensure the security of Middle East oil exports when those barrels are increasingly heading east rather than west?”
CNBC’s Sam Meredith contributed to this report.
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