A battle over oil rages alongside Russia’s war in Ukraine
While battles rage in Ukraine, another battle, perhaps even a war, is being fought in the energy world. Today OPEC+ met and agreed on a miserly increase in oil production, while the White House was advance-leaking President Biden’s announcement this afternoon of a further release from the Strategic Petroleum Reserve (SPR).
The figures tell the story. OPEC+ — the cartel of Saudi Arabia and traditional OPEC nations paired with Russia and some other producers — think that growing world demand can be satisfied by producing another 432,000 barrels per day. The amount that the United States thinks appropriate is more than twice that: a million barrels per day. (Total world demand is about 100 million b/d.)
Apart from being a blow against those countries which, outraged by the invasion of Ukraine, want to boycott Russia, OPEC+’s decision is a clear statement that traditional American allies in the Middle East — OPEC members Saudi Arabia and the United Arab Emirates (UAE) — are still at loggerheads with Washington, effectively siding with Moscow. Two days ago, Saudi Oil Minister Prince Abdulaziz bin Salman hinted at this outcome by declaring at an energy conference in Dubai that “everyone leaves his politics at the door” when they hold meetings. His UAE counterpart, Suhail al-Mazrouei, said: “We have one mission and only one mission, which is stabilizing the market. … Our aim is to calm the market.”
News reports did not indicate whether either man was asked if he had a message for the people of Ukraine. Some people may suggest that now is the time for another unscripted remark by President Biden.
There is economic argument, and precedent, for the Saudi and Emirati positions. (For example, Iran and Iraq both went to OPEC meetings during their 1980-88 war.) But for U.S. diplomacy it is yet another brick in the wall being built between Washington and Riyadh and Abu Dhabi. Both Saudi Crown Prince Mohammed bin Salman and de facto Emirati leader, Abu Dhabi Crown Prince Mohammed bin Zayed — respectively known as MbS and MbZ — are at odds with President Biden, reportedly feeling they no longer can rely on the United States for security, along with assorted other grievances.
Yesterday, Secretary of State Antony Blinken tweeted that he had “had an excellent meeting today with [MbZ] to reaffirm our strong partnership. We discussed ways we can promote regional security and deepen regional cooperation, as well as strengthen our defense relationship.” In remarks before the meeting, held in Morocco where MbZ is on vacation, Blinken also mentioned “Russia’s aggression against Ukraine, the impact it’s having … around the world … food prices, energy prices, all of this.” Afterward, UAE Ambassador to Washington Yousef al-Otaiba told Axios that the meeting helped “move the relationship between the UAE and the U.S. back on the right track.” In light of the OPEC+ decision, there is still more work to be done.
At least Washington and Abu Dhabi are publicly talking. Talks with Riyadh are less visible. Saudi Arabia has crucial spare capacity in terms of oil production, but not enough to replace Russian exports. The UAE has less numerically to play with but last year showed open frustration with its OPEC quota and the machinations of the cartel.
President Biden faces a conundrum. Internationally, he wants to squeeze Russia. Domestically, he wants to squeeze the oil industry so that Democrats retain green support in the November midterm elections. As the Wall Street Journal reported: “Biden’s Global Quest for Oil Triggers Political Pushback.” The oil market will spend the day absorbing the OPEC+ and SPR developments but it would not be a rash prediction to say that prices will remain around $100 per barrel, with consequential painful experiences for consumers, who are also voters. The Ukraine crisis, at least in energy terms, looks like it will continue through polling day.
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