Opinion

Saudis Maintain Upper Hand In Oil Markets As Biden Wraps Up Visit

DailyWire.com

“Human rights should be at the core of our engagement with the world — not the periphery. As president, Joe Biden will hold accountable Saudi Arabia, China, and every nation that violates the human rights of their citizens.” #DemDebate, 11/20/2019

President Biden made the trip to Saudi Arabia, the world’s largest exporter of crude oil, to discuss among other matters the continued high price of energy — which is a leading driver of the rampant 9.1% domestic inflation, decimating his approval ratings here in the U.S. as the midterms approach.

Joe Biden the president, who just returned from the Arabian desert, is a far cry from Joe Biden the candidate, who in November 2019 promised to treat the Saudi kingdom quite differently in response to the assassination of journalist Jamal Khashoggi which was presumably on Riyadh’s orders. “I would make it very clear we were not going to in fact sell more weapons to them,” Biden said in his debate with then-President Trump. “We were going to in fact make them pay the price, and make them in fact the pariah that they are.”

Strong words. But back in 2019, the energy landscape was quite different. In December 2018, the U.S. had for the first time since the mid-1950s become a net exporter of energy. It was a position the country maintained throughout 2019 and 2020.

But today the situation has changed dramatically. Once again, the U.S. finds itself dependent on foreign imports to fill the supply gap between demand and domestic production. And, so, we now have what Saudi Prince Turki Al-Faisal described as a “much diminished president” touching down in Jeddah hat-in-hand.

One could not have imagined in January 2020 a U.S. president jetting off to the volatile and duplicitous Middle East to, in effect, beg for oil while the U.S. sits atop proven reserves of 38.2 billion barrels of crude oil and lease condensate. But the collapse in domestic crude during the disastrous and ineffective COVID lockdowns, as illustrated by the nearly 75% reduction in U.S. rig counts, followed by the rapid rebound of economic activity, and thus soaring demand after the lockdowns were lifted, have left the U.S. in a precarious position. And now the president finds himself eating his condemnation of the Saudi royals while reversing several themes of his campaign, to wit: a drive for less fossil fuels in favor of green energy, and his push for holding nations accountable for human rights violations. Machiavelli is laughing.

To add insult to injury, despite Biden’s lofty rhetoric that “the world will hold Russia accountable” for its invasion of Ukraine through sanctions, the reality has turned out to be quite different – and also predictable to anyone who understands the nature of the realpolitik by which much of the non-Western world operates. Maybe the U.S. and its EU allies have declined to import Russian oil in a move to punish Moscow’s war-making on its neighbor, but other nations, most notably China, India, and, wait for it, Saudi Arabia have not. Sanctions only work if the flow of material is cut off severely, or even completely. Otherwise they just present glittering opportunities to those who opt to not go along with the program.

As such, the Saudis have seized upon Russia’s desperation to sell its oil and distillates to anyone who will take it. It’s currently a buyer’s market for Russian energy. And, as with other non-aligned nations in Asia, the Middle East, and Africa, the Saudis are gobbling up Putin’s fuel oil at steep discounts to power their own energy infrastructure. 

They have, in fact, doubled imports in the second quarter. This has freed the kingdom to sell its excess oil at a premium. It is a classic, and to this energy trader enviable, arbitrage. In short, the Saudis are standing in between the Russians and the U.S./NATO as de facto intermediaries, buying low from Putin and off-loading it at a premium to his enemies. Feel foolish yet? These are your tax dollars at work.

What can Biden, who promised to marginalize the Saudis just two short years ago in one of his all-too-familiar episodes of either ill-conceived or mentally debilitated spasms of irresponsible public caprice, do about it? He may have but two options, as releasing more oil from the Strategic Petroleum Reserve is of little long-term value.

One, he can beg OPEC to pump more fossil fuels, as he appears to be doing. Two, he can step out of the way and allow for increased domestic production by returning the Bureau of Land Management’s available acreage, environmental standards, and fee structures to numbers that mirror those before the February 2022 “pause” on leasing of federal lands that was enjoined by a Louisiana court. As of now, drilling will be allowed on federal land again, but on 80% fewer acres than before. And drillers will be saddled with higher environmental compliance hurdles, as well as a royalty that is 6.25% north of the pre-pause charge. 

By simply returning the lease structures to 2019 levels, the administration might incentivize increased drilling. But, of course, this would then be a slap in the face to the climate change lobby and activists who worked so hard to put him in office while imagining a carbon-free energy infrastructure — even as China, the world’s largest CO2 emitter by far, and India ramp up coal plant construction.

And yet, it might already be too late for the domestic carrot route as three factors will make it difficult for oil companies to increase production to pre-pandemic levels. First, rigs take a while to return to operations; second, the number of workers to operate them has been greatly reduced, especially since COVID; and third, investors, fearful of oil tumbling from these lofty prices, might discourage overproduction.

So, the president now has little choice but to go into the belly of the oil beast if he wants his party to have any chances of holding on to power by reducing energy costs before November. Said national security advisor Jake Sullivan in Israel, the first leg of Biden’s Middle East sojourn, “We believe any further action taken to ensure that there is sufficient energy to protect the health of the global economy will be done in the context of OPEC+.” He added, “We are hopeful that we will see additional actions by OPEC+ in the coming weeks.”

But there is little incentive at the moment for OPEC+ (which includes Russia) to flood the market with cheap oil. Certainly the Saudis are very well-positioned to benefit from the status quo. And in the mind’s eye one can see Biden groveling before a grinning Mohammed bin Salman Al Saud with a shaky: “Sorry about that whole ‘pariah’ thing. No hard feelings? And we’re selling you weapons again, right? So are we cool? Fist bump?” 

Ironically, the sanctions that were supposed to prostrate Putin in submission have instead ended up forcing Biden, and thus the American taxpayer, on a bended knee before the altar of the Arab nation that is printing money thanks to a classic arbitrage the sanctions created. And given the weakness of the current administration, Riyadh has little reason to change either its moral ways or its energy output. Meanwhile the war in Ukraine rages on. It’s funny how the law of unintended consequences works. Although no one filling up their tank here is laughing.

Brad Schaeffer is a commodities trader, columnist, and novelist. He is the best-selling author of two novels, Of Another Time And Place and The Extraordinary.

The views expressed in this piece are those of the author and do not necessarily represent those of The Daily Wire.

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The Daily Wire   >  Read   >  Saudis Maintain Upper Hand In Oil Markets As Biden Wraps Up Visit