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 imploring OPEC states, then expressing anger at their
decisions on oil production. But a new, more active American oil policy
threatens changes.
اضافة اعلان
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 bpd, which will amount to
about 900,000bpd of real reduction. 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 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 $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 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 Gulf. 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
Qaddafi.
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 OPEC
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 Mohammad bin Salman, intended to rescue the US industry.
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.
The shale
revolution now seems to have run its course as investors prefer cash to growth.
American 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 Democrats, 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.
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, 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,
sustaining its war in Ukraine.
Riyadh, by
contrast, defended its position and was eventually supported by the UAE,
Bahrain, Oman and Iraq. It pointed to the concerns over oil demand and low
levels of spare capacity. Its foreign ministry said the decision was unanimous
(as OPEC decisions must be), “purely economic”, and aimed to limit price
volatility.
There is also
some suspicion that Saudi Arabia now favors higher oil prices to fund its
diversification, such as the $500 billion new city Neom, although local
investment bank Al Rajhi believes it is budgeting for next year at about $76
per barrel.
The White House
will fall back on old tools, and try out some new ones. It has used the
Strategic Petroleum Reserve (SPR) far more actively than under any past
president, as a price management mechanism. The lunatic concept of banning US
oil exports has again circulated. A renewed Iran nuclear deal, which would
restore Iranian oil exports, seems off the table for now. Otherwise, its 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 wishes
to ever 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.
Robin Mills is CEO of Qamar Energy, and author of “The
Myth of the Oil Crisis”. Syndication Bureau.
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