World oil prices are determined in the Middle East or the story of how the U.S. underestimated the power of OPEC+
There is a perception in society that countries which produce all sorts of consumer goods and technological devices from specific resources will always dominate the states which extract and supply those same resources. This has even become a sign of the division of countries between developed and “backward” ones. It is hard to argue that well-developed science and high-tech industries add to any country’s economic competitive edge but the lack of sufficient resources available at affordable prices can also be a barrier to sustainable development. Today, the UAE, Qatar or Saudi Arabia cannot be seen as underdeveloped. For decades they have been developing their economies and trying to get off the hydrocarbon needle but the events of last year have shown that they use together within the OPEC+ cartel their energy resources as a powerful political and economic tool which continues to be their key strength. When, against the backdrop of the conflict in Ukraine, the U.S. and Europe had an urgent need to increase oil production and reduce the price of oil, they began negotiating with Saudi Arabia and Iran as ‘third world’ countries, based entirely on the stereotype we mentioned at the beginning. But practice has proved that the time for diktat is over and the owners of one of the world’s most valuable resources do as they want.
The first country that seriously upset the United States was Saudi Arabia, the informal leader of OPEC+ and the once key and reliable American ally in the Middle East. The Washington’s reckless policy of “diversifying” the Middle East partnership led to the actual rupture of the alliance with the Saudis and became clear back in July after Joe Biden’s visit to the country. At the same time, it was obvious that Saudi Arabia would not increase oil production at a loss in order to save the American economy. In October, the reality turned out to be even more interesting: the Saudis and OPEC+ not only did not increase oil production, but also reduced it in order to make completely useless Biden’s efforts to decrease the price of gasoline for consumers in the U.S. In the United States over the past month, fuel has fallen in price by an average of 5%, and so far the White House is holding back the rise in gasoline prices with titanic efforts. However, after the OPEC+ action, many U.S. experts believe that the cost of gasoline in the U.S. could rise again. Believing that they are still masters of the situation, U.S. officials persuaded their counterparts from Middle Eastern countries to vote against production cuts at the OPEC+ congress. However the result was a shock and a catastrophe for them. Moreover, as a “bonus”, Saudi oil company Saudi Aramco raised its November supply prices specifically for the U.S. market, reducing them for European consumers and not changing them for Asian ones.
Before the events in Vienna, Biden naively believed that Saudi Arabia was still in the U.S. sphere of influence. However, today it is clear that the OPEC+ agreement to reduce oil production indicates the failure of the American policy of building an alliance with the Saudis. In fact, such a decision is also a painful blow to Biden’s image inside the U.S., which is already very dubious. In addition to failures in economic and social policy, there is the realization that Washington is incapable of controlling the actions of states around the world, although yesterday they could not make a move without American knowledge. Meanwhile, the Democrats have desperately tried to compensate their domestics political failures with successes on the international level. Apparently, Crown Prince and Prime Minister of Saudi Arabia Mohammed bin Salman, could not tolerate the threats and disrespect from the American president, and took his revenge in a very tangible form. Biden was immediately hit by a barrage of criticism from the opposition. For example, Republican congressman and parliamentary convener in the House of Representatives Steve Scalise said that Biden ruined America’s oil and gas industry and made the U.S. dependent on OPEC again, begging the cartel to produce more oil and the organisation ended up cutting production by two million barrels a day, which is a complete failure and a mockery.
What was the reaction of the American authorities to this failure? Immediately there were attempts to pressure Saudi Arabia and intimidate its leaders. The U.S. media were the first to call for toughness. For example, Bloomberg wrote that U.S. President Joe Biden should hit Saudi Arabia where it really hurts. Journalists expressed the view that Washington should do away with the “special” position of the Middle Eastern kingdom in American foreign policy, and lower the level of diplomatic relations with Saudi Arabia to the level of Malaysia or Brunei. Apparently, they were too left-thinking back to 2000, when it would have scared the Saudis to death, but failed to consider that in the new competitive world, this “diplomatic retribution” no longer scares them very much. Nevertheless, officials soon joined a campaign of “intimidation”.
While John Kirby made a lot of lip service on “reviewing relations”, Biden said that Saudi Arabia would face “consequences” for its lobbied OPEC+ decision to cut oil production, but refused to elaborate on them, apparently realising that there were not many real instruments left. U.S. lawmakers were more specific and introduced a bill in the Senate to stop arms sales to Saudi Arabia for a year. Also a group of members of the U.S. House of Representatives proposed withdrawing the U.S. military from the UAE and Saudi Arabia. This measure provides the withdrawal of the American contingent together with air defense systems, including Patriot and Terminal High Altitude Area Defense (THAAD) systems. It is impossible not to note that the powerful army and military-industrial complex is one of the last effective arguments of the American empire in any international altercation. But it is obvious to everyone, including the Saudi Arabian authorities, that this is just blackmail since the U.S. military industry badly needs orders from rich Arab countries, and it is not ready to give them up. The realisation that it is impossible to change anything leads the tame media to accuse Saudi Arabia of “ties with Russia”, when clearly Saudi Arabia is only pursuing its own rational political and economic interests.
A realistic assessment of the situation makes it clear that the U.S. risks severely damaging its relations with Saudi Arabia if the U.S. decide to punish Saudi Arabia for reducing oil production. It will not cause serious damage to the Arabs, but it will lead to more energy problems for the Americans in the future. Hotheads see the main tool to fight the “insolent” Saudis as the “No Oil Producing and Exporting Cartels Act” or NOPEC, which proposes to subject OPEC+ to the Sherman Antitrust Act. These romantics think that passing the bill would allow the White House to file an antitrust suit against OPEC+ for manipulating prices in the global oil market. But they forget that Saudi Arabia is not a simple American from Iowa, or a Donald Trump or Elon Musk, against whom far-fetched criminal cases can be brought and threatened with trial. People who fancy themselves as gods should not be running the state apparatus, but should be treated in a mental hospital. In reality, Washington will never dare to worsen relations with Saudi Arabia, and any menacing statements are only a ridiculous bluff. Things are so sad for the Biden administration that it has already been attacked by Republican lobbyists close to Saudi Arabia (the Arabs have generously sponsored the Trump campaign), who have called for an investigation into the actions of President Joe Biden’s administration in trying to press Saudi Arabia on oil production cuts.
An even more expected setback for the U.S. was the failure of a plan to increase oil production with the help of Iran, which, unlike Saudi Arabia, has always had a very unfriendly relationship with the Americans. Attempts to exploit these resources by Washington began back in 2015, when they spearheaded the signing of the so-called “nuclear deal”. Iran was promised the removal of a host of sanctions and retaliatory measures, including more oil exports to the world market, for curtailing research on the peaceful and fighter atom. Before 2022, it was an equivalent exchange, in which the Iranians sacrificed their “nuclear” dreams in the name of oil revenues, but today the situation has changed dramatically. Both Iran’s disarmament and its oil were now needed far more by the U.S. than by the Islamic Republic. Quickly realising the new profitable rules of the game, Iran apparently began to make overly ambitious demands and preferred huge geopolitical prospects to short-term gains. As a result, in September, U.S. Deputy Secretary of State Wendy Sherman declared that negotiations to restore the Iranian nuclear deal “have reached an impasse”. Immediately after, Iran expanded their nuclear program by using a third cascade of modified IR-6 centrifuges to enrich uranium at its underground Natanz facility. This operation also embarrassed U.S. allied Israel, for which implementing the nuclear deal was literally a matter of national security. Joe Biden’s obsession with reviving the Iran nuclear deal also had a negative impact on U.S. relations with Saudi Arabia, becoming one of the indirect causes of the OPEC+ demarche.
Saudi Arabia denies the political background to the OPEC+ agreement’s decision to reduce oil production, but it is clear that apart from the purely economic benefit, it is a political gesture, which suggests that the Saudis will now “be friends” with China, Russia, India or another country and will not ask permission from the U.S. to do so. The psychology of Western politicians prevents them from understanding why Saudi Arabia will not serve them and why it will not allow the G7 to act together and manipulate the oil market. The U.S. expects eternal gratitude from the Saudis: it was once the Americans who indirectly created OPEC when, in the name of ousting their British and Soviet rivals in the 60s and 70s, they revised the terms of oil revenue sharing in favor of the Arab sheikhs and showered them with money and influence. Unfortunately, there was and will be no eternal gratitude in world politics.
From one day to the next, in revenge for the attempts to impose a price ceiling on its own oil, Russia also may limit its production. After the OPEC+ decision to reduce oil production, the U.S. President Joe Biden faced a difficult choice: continue trying to woo Saudi Arabia with persuasion or “pressure”, or rely on the U.S. oil sector as an instrument to regulate fuel prices. Impotence to pursue the former path has left them relying on their own power, though this is very unpopular with the public. More recently, Biden stated that he was disappointed by the “short-sighted” OPEC+ decision to cut oil production and intended to support the market with additional commodity interventions from strategic reserves. The U.S. Department of Energy will release a further 10 million barrels in November at the president’s behest, in addition to the 180 million barrels authorized in March. The question remains what Biden will do when the strategic reserves will be empty. Anyway, one thing is clear: in future negotiations with an organisation as powerful as OPEC+, Biden will now be extremely cautious and respectful lest he again fall into an “oil energy trap” set up by Saudi Arabia, Iran, the UAE, Qatar or any other “backward third world country”.