Biden’s other setback: OPEC+ ignores his plea for help
It looks like the future is to head back in history to yet another rerun of an OPEC crisis. Saudi Arabia and others are in an arm-twisting competition with us and other industrialized countries about the price of oil. The cartel, now known as OPEC+ because of the loose addition of Russia, Kazakhstan and a few others, rather likes prices as they are — more than $80 per barrel, with $100 in its sights. They are only increasing production marginally so as not to weaken the price, when most of us here want more oil and we want it cheaper.
The timing is auspicious. Just last week, the buzzword at the Glasgow COP26 climate conference was “sustainability.” The arrival of winter temperatures across the U.S. means that this week’s slogan is likely to be “keeping warm.” That will be a challenge for many: There are also local shortages of fuel oil and natural gas, and so what is available is more expensive.
The OPEC crisis parallel is doubly appropriate because there is talk of opening up the Strategic Petroleum Reserve (SPR), the oil held in salt caves in Louisiana and Texas supposedly for a supply challenge such as the Saudi-led Arab embargo in 1973 or Iran blocking the Persian Gulf, the main source of much of the world’s imported oil. The fact that there is talk about the SPR is surprising: In the past, policymakers and economists have doubted the merit of releasing oil from the SPR merely for what probably will be only a few months of comparatively minor challenges.
We are in this mess because of a failure of diplomacy. As the Financial Times reported on Nov. 4: “The White House has said OPEC+ risks imperiling the global economic recovery by refusing to speed up oil production increases and warned the U.S. was prepared to use ‘all tools’ necessary to lower fuel prices.” It went on: “President Biden has blamed Russian and Saudi oil restraint for a surge in U.S. [gasoline] prices, which have risen 60 percent in the past 12 months.”
It was easy to anticipate this potential train wreck. Despite the huge number of world leaders who turned up in Glasgow for the COP26 conference, President Vladimir Putin of Russia and Crown Prince Mohammed bin Salman of Saudi Arabia were noticeably absent. Putin, along with President Xi Jinping of China had not been expected. But MbS, as he is known, was a surprise no-show. He didn’t appear, either, at the preceding G-20 meeting in Rome. Apparently President Biden wasn’t prepared to meet him and probably some other world leaders were relieved by his absence also. MbS’s reputation still carries the bloodstains of murdered Saudi dissident Jamal Khashoggi.
But whatever the merits or otherwise of such protocol games, it complicates the game of bluff often necessary to resolve policy differences. And so it is a reasonable bet that things will get worse before they get better.
This updated OPEC crisis is different in that it also involves natural gas as well as oil. That’s a reflection of the advance of natural gas in the energy mix and also the simple fact that incremental supplies of super-chilled natural gas, known as LNG, cannot be created and shipped around the world as simply as oil production can be increased. Politically, Russia is a major supplier of natural gas, supplied by pipeline to Europe, where it plays multiple different games. The latest, according to the Financial Times, is to lower the amount of its gas in storage reservoirs in Europe.
Don’t expect much unity among consumer nations, other than the normal declarations of shared purpose. Britain has quickly secured an extra four cargoes of Qatari LNG, which should see it through the winter, and make the small Gulf state its gas “supplier of last resort.” It’s looking increasingly like “every man for himself,” a phrase worthy of Prime Minister Boris Johnson, although he hasn’t said it yet.
Because Washington is the talking shop that it is, there is already much being said about why this happened. Republicans are quick to point out that the Biden’s administration’s Day One decision to cancel a pipeline from Canada and limit oil exploration on federal land didn’t help. Being determined to push for a “sustainable” planet is laudable, but not if your electorate is going to be cold this winter. And what happened to American “energy independence”? We sort of were independent — or nearly so, in terms of the balance sheet of energy imports being less than energy exports. But shale oil and shale gas had a rough time, and investors want to recover some of their capital before turning the taps on again.
Political sophisticates will extrapolate all these trends for the implications for the midterm elections, now less than a year away. Perhaps there will be an impact, but the crisis is upon us now. The future is way beyond.