Mohamed bin Salman greets Biden with a fist bump at Al-Salam Palace in Jeddah, last July (photo: AP)
The American administration’s reaction to the decision by OPEC and its allies to cut production by two million barrels a day as of next month was strong enough to indicate a rising tension with oil producers, especially Saudi Arabia. Though the decision was widely expected, and in fact did not have much impact on oil prices, Washington considered it a clear message by its Gulf allies that they are not inclined to honour the American request to keep pumping oil.
Democrats and Republicans alike have seen the move as an indication that the Gulf countries are siding with Russia against the American and Western stance on the war in Ukraine.
OPEC officials insist the decision is purely technical, aimed at sustaining stability in global markets. But, since the Russian Deputy Prime Minister Alexander Novak was in the OPEC+ meeting in Vienna, the Americans were furious. OPEC+ is an alliance of OPEC members led by Saudi Arabia and non-OPEC producers led by Russia. So Novak, who is Russia’s energy minister, had to be in the meeting. Though he is under American sanctions, Novak is not under EU sanctions. Sources at OPEC told Al-Ahram Weekly that the US tried to pressure Austria to ban his attendance but OPEC+ members threatened to move the organisation’s headquarters from there if its integrity is not preserved.
Whether Russians took part or not, the meeting was destined to cut production to face dwindling demand due to anticipated global economic recession. In fact, balancing the demand-supply equation might have required bigger cuts as a preemptive measure to avoid a glut in the market and a price crash.
As the decision was made just over two months after Biden’s meeting with Saudi Crown Prince Mohamed bin Salman in Jeddah, some in the US saw it as a failure of Biden’s Gulf policy. Apart from the war in Ukraine and economic sanctions on Russia, the ruling Democratic Party is nervous about the Congressional midterm elections next month. High petrol prices at the pump exacerbate their gloomy prospects with opinion polls suggesting Republicans might win majority in both House and Senate.
The decision by OPEC+ on Wednesday also coincided with the Jewish Yom Kippur, the 19th anniversary of the October War of 1973 when the Arabs defeated Israel and liberated part of their occupied lands. That drove many analysts in the West to compare the current energy crisis with the oil crisis of the 1970s when Arab oil countries cut their exports to countries supporting Israel. That was an entirely different situation, but the analogy remained tempting.
Just after the OPEC+ decision, a veteran analyst at S&P Global Commodity Insight, Roger Diwan said in a note that the cuts marked a “weaponisation of oil” and suggested the timing and location of the meeting were a deliberate signal: “The presence of the Russian deputy prime minister under US sanctions, to discuss tightening of oil supply heading into a winter in which Russia has already weaponised its gas exports to Europe sends a clear message... Saudi Arabia’s adversarial path will skew price risk even higher for oil.”
That, however, did not happen. And yet the move might still be an indication that the Gulf countries have changed. As Emirati professor of politics Abdulkhaleq Abdullah told the Financial Times, “Some in Washington definitely don’t realise there’s a new Gulf and we no longer take orders from Washington.” Abdullah’s remark might be something of exaggeration, but the days of Americans automatically having their way in the Gulf are clearly over.
Emirati Energy Minister Suhail Al-Mazrouei told reporters after the Vienna meeting that OPEC acted to ensure producers would keep investing in new oil supplies. He added, “in Europe, they have their own story, in Russia they have their own story. We can’t be siding with this country or that country.”
Saudi Energy Minister Prince Abdulaziz bin Salman denied any political motivation, implicitly rejecting the idea that the decision involved any aggression towards the US or other consumers, saying it was not made in defence of Russia. “Show me, where is the belligerence? Where is the ill intent?” Prince Abdulaziz said.
Yet President Joe Biden had already said he was “disappointed” about the decision to cut oil production and would be looking at “alternatives” to bolster supplies. The White House said OPEC had “aligned with Russia”. Two senior officials, the National Security Adviser Jake Sullivan and the Director of the National Economic Council Brian Deese issued a joint statement suggesting the White House should reverse course and support bipartisan legislation (so-called NOPEC) that would make the oil-producing cartel legally liable for any price collusion.
The other option for Biden’s administration is to release more of oil from the strategic reserve which has been at its lowest levels since 1984. An announced release of tens of millions of barrels earlier didn’t impact the market, but more releases might cause a supply glut justifying more cuts by OPEC.
The NOPEC draft has been used for more than two decades to pressure Gulf oil producers, but it never made it through Congress, not because of Gulf countries lobbying but rather due to fierce opposition from American oil companies. There is no guarantee it will make it this time if the threat is carried out.
In a measured response to the American reaction, Saudi Arabia’s energy minister warned in a Bloomberg TV interview that US-led plans for a price cap on Russian exports are fanning the uncertainty that drove OPEC+ to its biggest production cut in two years. “The lack of details and the lack of clarity” about how the price cap will be implemented add to the sense that coming two months will be “a period of uncertainty… We don’t see what will be the reaction of the market or the participants,” Prince Abdulaziz bin Salman said.
Some Gulf sources predict the tension will not escalate into a full-blown energy crisis, noting the “strategic relationship” between US and Gulf countries. They even suggest it will all “cool down” after the midterm elections next month.
*A version of this article appears in print in the 13 October, 2022 edition of Al-Ahram Weekly.
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