Saudi Arabia’s OPEC+ decision wasn’t as simple as ‘betrayal’
“Betrayal,” “fleecing”, “collusion.” These are the charges Biden officials and congressional Democrats continue to level against Saudi Arabia for the Oct. 5, Organization of Petroleum Exporting Countries (OPEC+) decision to cut oil production, as they demand “consequences.”
However, what was decided — and why — is more complex than this vehement, counterproductive reaction suggests.
“Saudi Arabia colluded with Russia — deciding to cut 2 million barrels a day of oil production … raising the price of gas to Russia’s advantage,” accused Sen. Richard Blumenthal (D-Conn.) and Rep. Ro Khanna (D-Calif.) in a “Politico” opinion piece — a typical reaction. Yet, this description is misleading.
According to their own statement, OPEC+ — 20 countries and other oil-exporting nations, including Russia — decided to “adjust downward the overall production by 2 mbd/d from … required production levels.” That means the quotas for the maximum amount of oil that countries agree to produce were lowered by 2 million barrels per day. However, since not every OPEC+ country pumps as much oil as the current quotas permit, the expected “voluntary adjustments,” will likely be 0.5-1.0 million barrels per day beginning in November. Out of 100 million barrels of global demand, the market impact should not be very significant. Indeed, as of Tuesday, oil prices were lower than before OPEC+’s announcement.
Not malice, but slowing global oil demand was a critical motivation for this adjustment, as our colleague, energy expert Lawrence Goldstein has pointed out. OPEC had estimated global oil demand to grow this year by 3 million barrels per day. Saudi Arabia alone raised production by over one million barrels per day to meet it. But that forecast proved wrong. Chinese demand, for example, has declined by 400,000 barrels per day instead of reaching a forecasted 500,000 barrels per day — a 900,000 barrel per day swing — while U.S. oil demand has grown by just half of the forecasted 600,000 barrels per day. Demand will likely decline further, particularly given the impact of persistently high inflation, leading to building oil stockpiles. A production cut was certain, the only question was when OPEC+ would reduce output.
European and American discussions to cap the price of Russian crude hastened that decision. The Saudis feared that, if implemented, this consumers’ cartel could then counter OPEC’s pricing strength. Given oil revenue’s centrality to their economy and political influence, the Saudis could not abide this and repeatedly said that to the Biden administration.
The Biden administration was also seeking to manage supply, though less coherently. For months, it has been selling about 1 million barrels per day of the Strategic Petroleum Reserve (SPR) — and just announced it will continue doing so through December — to reduce gasoline prices to help Democrats in the November midterm elections. President Biden is expected to announce continued releases today.
The SPR, which was designed to address supply disruptions, is now at its lowest level in nearly 40 years, seriously risking U.S. national security. At the same time, the administration was limiting domestic oil supplies by raising regulatory restrictions and reducing acreage and economic incentives to energy development, to cater to its political base. It then asked the Saudis to hold off any production cuts until after the U.S. midterm elections.
But the Saudis were not receptive to such a political favor. Biden publicly has labeled Saudi Arabia a “pariah” for the heinous killing of Jamal Khashoggi, denied it weapons to defend itself against arch-enemy Iran and its proxies, and relentlessly pursued an awful nuclear deal with Iran that would pave its way to nuclear weapons capability while providing it hundreds of billions of dollars in sanctions relief.
This has been strategically and economically counterproductive for the United States if for no other reason than emboldening adversaries and disarming partners invites conflict and higher oil prices.
This U.S. policy is also morally upside down. Outside of Israel, no Middle Eastern country is a true democracy, so important liberal markers are the treatment of women and the Jewish state. The Biden administration has made the Khashoggi killing central to its relations with Saudi Arabia even as it appeases a Tehran regime that oppresses and kills women who unfortunately do not have the advantage of being “Washington Post” columnists while threatening the Jewish state’s existence. Crown Prince Mohammed bin Salman, instead, has expanded women’s rights and quietly warmed relations with Israel. Moreover, Iran, unlike Saudi Arabia, provides Russia with drones used in Ukraine and routinely attacks U.S. forces and partners.
Still, given the criticality of its security relationship with America, Riyadh should have at least recognized the bad optics of a decision that helps Russia and hurts the U.S. economy and found some proper way to address Washington’s concerns. But distrust between Washington and Riyadh has become so deep that each side keeps pushing the other further away.
This downward spiral of U.S.-Saudi relations serves neither side and since President Biden triggered it, he needs to lead in reversing it. He should withdraw from Iran nuclear talks, punish Iranian aggression, powerfully support Iranian protesters, express appreciation for Saudi societal reforms and concretely assure it has Saudi Arabia’s back. The Saudis should then make clear it stands with the United States.
Michael Makovsky, a former Pentagon official, is president & CEO of the Jewish Institute for National Security of America (JINSA). Blaise Misztal is JINSA’s vice president for policy.