As Biden Loses Saudi Arabia, Gas Prices to Skyrocket Again

AMAC Exclusive – By Daniel Berman

Hopefully everyone enjoyed “lower” gas prices while they lasted. OPEC leaders, meeting in Vienna, voted last week to cut global production by 2 million barrels a day – a shot across the bow of both the European Union, which has angered OPEC by trying to impose price caps on gas, and the Biden administration, which had publicly begged Saudi Arabia to increase production as it runs the U.S. strategic petroleum reserve down to historic lows.

In taking this step, the Saudis and other OPEC members have decided to make clear that they, not the European Union, set prices, and that they can cut production for longer and further than Biden can manipulate prices with his strategic reserve. It was a power-play, plain and simple – one that undercuts Biden’s international credibility and Democrat hopes of winning the midterms by manipulating gas prices. It is also one which Democrats, by their own actions in 2020, left themselves open to.

In the spring of 2020 amid the onset of the pandemic, prices for oil futures in North America briefly dropped into negative territory. While markets panicked, the Trump administration spotted an opportunity to pull off a spectacular deal for the American people: the United States government would purchase the oil to refill the strategic oil reserves at almost no cost, while the energy industry would be saved from collapse in the midst of COVID-19.

But House Democrats, convinced that fossil fuels were on the way out, a belief only reinforced by the collapsing price of oil, rejected what they termed a “bailout” of the energy sector. Their actions not only discouraged investment, reducing production capacity at home which the Biden administration would have dearly wished to have this spring, but has also now left the strategic reserve depleted, and the taxpayers on the hook to replenish it at four times the cost in 2020.

Having weakened domestic production, Biden also spent a year antagonizing Saudi Arabia before pivoting toward conciliation only after the Russian invasion of Ukraine shifted the balance of power in the relationship decisively in favor of Riyadh, which reduced the effectiveness of any shift. Rather than a restoration of relations in which a supplicant Saudi Arabia accepted Biden’s leadership, the President’s trip to Saudi Arabia this summer was a series of slights.

The bankruptcy of U.S. influence was evident in the leadup to the OPEC summit. According to CNN, the White House undertook a massive lobbying effort which included sending Secretary of the Treasury Janet Yellen to the region to personally lobby gulf leaders. “There is great political risk to your reputation and relations with the United States and the West if you move forward,” read some draft White House talking points for Yellen. The White House’s communications strategy was similarly a bizarre mixture of threats, only effective if the U.S. radiated confidence. Panic, which advertised weakness, nullified the threats. As CNN reported: “Some of the draft talking points circulated by the White House to the Treasury Department on Monday that were obtained by CNN framed the prospect of a production cut as a ‘total disaster’ and warned that it could be taken as a ‘hostile act.’”

Threats can be effective if they are credible. The problem is that the actions of the Biden administration, along with those of the European Union, sought to threaten OPEC without the credibility which would have made them effective. The Biden administration’s efforts to use the strategic oil reserve to manipulate prices may have been primarily intended to buy the Democratic Party votes, but it also came off as an effort to prove that Biden and his team could challenge OPEC control of prices. If Biden could succeed, even for a few months, in making U.S. oil prices “international production-proof,” then a wiser President, one who had adopted Trump’s approach and built up the strategic reserve to two or three times its current level, might be able to sustain a geopolitical standoff with the Saudis long enough to prevail. Therefore, Biden’s very effort to lower prices without Saudi help ensured that Saudi help would not only not be forthcoming, but that the Saudis would do everything possible to raise prices.

At this point, Biden’s only direct weapon was geopolitical threats – hence the leaked Yellen talking points. But these threats could only be effective if Riyadh believed Biden could actually follow through.

There was never a chance of this. First of all, the Saudis know the level of the U.S. strategic reserve. They therefore know that they can cut production whenever they choose, but Biden only has a finite amount of oil he can release. Secondly, it is unclear what leverage Biden has over the Saudis. What is the risk to Riyadh’s “relations and reputation” with the West if Biden’s team have already called the Saudi Crown Prince and new Prime Minister a murderer, and accused Saudi Arabia of atrocities in Yemen? If Biden will consider a production cut a “hostile act,” what will he do in response? Refuse to buy Saudi oil in addition to Russian oil? Where will he then get the oil he needs?

In short, by bluffing, and doing so transparently, Biden forced the Saudis and their allies to call his bluff. Even if the Saudis had wanted to help the United States geopolitically, if they had declined to raise oil prices after Biden threatened them if they did, they would have been sending the message that they had given in to Biden’s threats. This in turn would have encouraged Biden and his team to think this approach worked and to threaten the Saudis in the future with “risking their relations and reputation with the West” if they committed “a hostile act” by doing anything Biden disliked.

In short, in 2020, Democrats removed much of the United States’ leverage by undermining its energy independence and opposing the replenishment of the strategic oil reserve. Not only are they now being forced to authorize purchases to refill it at $80 a barrel when Donald Trump had secured a deal to do at $24 a barrel, but they also left themselves without leverage in their relationship with Saudi Arabia. Then, rather than recognizing that this precluded conducting the relationship with Riyadh from a position of strength, they proceeded to make impotent threats, all but forcing the Saudis to call their bluff.

In the aftermath of the meeting last week, Biden and his team were desperately trying to spin the outcome, suggesting that his visit to Saudi Arabia this summer had not been about oil in any case, and therefore could not be a failure. Yet they could not hide their disappointment. Jake Sullivan, the National Security Adviser, and Brian Deese, the Director of the National Economic Council, issued a statement declaring that “the President is disappointed by the shortsighted decision by OPEC+ to cut production quotas while the global economy is dealing with the continued negative impact of Putin’s invasion of Ukraine,” while promising to consult with “Congress” on future moves.

In the meantime, far too many Democrats let vent to their impotent frustration. New Jersey’s Bob Menendez, the chair of the Senate Foreign Relations Committee, at least until the midterms, declared “enough is enough,” threatening to cut off arms sales unless the Saudis change their position on the Russo-Ukrainian conflict.

Yet behind this bluster, lay panic. Having ruled out any further use of the strategic reserve a mere 24 hours earlier, with White House Press Secretary Karine Jeane-Pierre declaring that “We’re not going to be considering any more releases from the Strategic Petroleum Reserve beyond the 180 million barrels” Biden had previously ordered released, the administration reversed course and announced the release of an additional 10 million barrels. Conveniently, this release would only last through early November, when the midterm elections take place.

Let there be no mistake: there are few options available to the administration. They can try and accelerate the depletion of America’s strategic reserves to try and aid Democrats in the midterms and then blame the subsequent price increases on Republicans, but the simple truth is that when it comes to energy and the geopolitics around it, they have checkmated themselves. Without domestic self-sufficiency, Biden and the Democrats have made the American people dependent on foreign sources, and the more foreign suppliers Biden and the Democrats alienate for political reasons, the less leverage they have with the remainder.

The administration needs to get serious about an energy strategy, rather than resorting to the same impotent threats with which they have conducted domestic policy.

Daniel Berman is a frequent commentator and lecturer on foreign policy and political affairs, both nationally and internationally. He holds a Ph.D. in International Relations from the London School of Economics. He also writes as Daniel Roman.