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Saudi Arabia’s Crown Prince Mohammed bin Salman and US President Joe Biden during a summit in Jeddah.
Laws, votes & guns: America’s options to respond to Saudi oil cuts
Following the largest cut in oil production — 2 million barrels per day — since the beginning of the pandemic by the Saudi-led OPEC+ oil cartel (which includes Russia), the Biden administration finds itself on a war footing about how to deal with Riyadh.
Not heeding American pleas to increase output — and instead triggering an increase in oil prices just before the midterm elections — is being seen in Washington as an attempt by Saudi Crown Prince Mohammed bin Salman to influence US politics to the advantage of Republicans. It’s also being kicked up as a clear pro-Putin move by some members of Congress, who have started to push legislation that would enable the White House to deal forcefully with the Saudis.
Remember, President Joe Biden burnt a lot of political capital in the summer with his tour of Saudi Arabia — fist-bumping-for-oil-pumping was the intention, kind of. Clearly, by the president’s own admission, those measures have fallen short.
With gas prices spiking, Republicans blaming the White House and Democrats pushing for action, how will the administration respond? Besides a host of maneuvers (limiting energy exports, tapping into the already almost-tapped out Strategic Petroleum Reserve, easing sanctions on oil-producing bad actors), the Biden administration has at least three choices provided by Congress to move against the Saudis and/or OPEC+.
First, the NOPEC vs OPEC option: The NOPEC (No Oil Producing and Exporting Cartels Bill) bill would empower the US Justice Department to sue oil cartels for antitrust violations in oil and gas products. The premise would be prosecuting price-fixing under the Sherman Act, and consequences could include seizing foreign-owned property to pay for damages.
Until recently, the White House had been careful not to take up this option, but has now hinted that it’s now working on it with Congress — where the legislation has enjoyed bipartisan support for years.
Next, the OPEC Accountability Act [aka the ‘See You In Court’ Act]: Reintroduced last week on the same day as the OPEC+ announcement, this bill would require the US president to initiate consultations with OPEC countries; if these do not succeed in “ending collusion on oil production and market manipulation,” the legislation instructs the US Trade Representative to initiate dispute proceedings at the World Trade Organization, which would take the US versus OPEC+ war into the bureaucratic but hectic machine of international law.
Then, the [aptly named] Strained Partnership Act: Also tabled last week by Democrats who term Saudi actions as a hostile move that hurts American consumers, the bill focuses on the US pulling out its approximately 3,000 troops in Saudi Arabia and 2,000 in the UAE, including Patriot missile batteries and the THAAD air defense system based there, within 90 days.
Unclear about where in the Middle East to relocate these assets, the proposed legislation isn't novel either: its Democrat authors say Republicans used similar legislation under former President Donald Trump to stare the Saudis down in 2020 — but that was to decrease production, not increase it. In any case, the bill acknowledges the difficulty of moving troops around “to the extent practicable.” Also, Congress is out of session until the election.
However, Washington’s defense ties with Riyadh have become very unpopular with Americans. A new Eurasia Group Foundation survey says that more than two-thirds of both Democratic and Republican and Democratic voters oppose continued US arms sales to Saudi Arabia.
While the US is the world’s largest arms exporter, Saudi Arabia is the world’s second-largest importer. The kingdom is also the No. 1 importer of American weapons, accounting for 23% of all US exports from 2017-2021. But America’s biggest arms customer is also its most controversial buyer.
The tilt within Biden's own party is clearly against selling weapons to the Saudis: nearly three-quarters of Democrats opposed arms sales to Riyadh, compared to 62% of Republicans, according to the survey.
Why? First, Saudi Arabia’s track record of domestic oppression and human rights abuses. Second, the kingdom’s use of US-provided weapons in the war in Yemen.
Collusion on oil prices wasn’t one of the top reasons — but it could be now. The study also notes that while Biden announced early in his administration an intent to end the sale of offensive weapons used in Saudi Arabia’s war in Yemen, he’s reportedly still reevaluating this decision.
In the desert, reality bites the dust. The US has a host of measures it can take to retaliate if it wants to, including limiting arms. But none of these are likely to alter Saudi decision-making or deter Riyadh from taking similar decisions on oil in the future, even if this means being at odds with Washington, says Raad Alkadiri, Eurasia Group’s managing director for Energy, Climate & Resources.
“This is the latest sign of a strategic schism in the alliance that has been building for some years,” he explains. “Saudi and US interests are diverging, with Riyadh increasingly questioning the credibility of the US security guarantee and putting its own financial and economic priorities ahead of Washington’s desire for lower oil prices.”
While the Saudi oil-price floor no longer overlaps with the US oil-price ceiling, at least for the moment, and with both sides focused on immediate political and economic priorities, Alkadiri says that the room for compromise has shrunk.
Clearly, Saudi Arabia under MBS is acting more independently than it has done in the past, and much like the UAE, is looking east to secure its economic future.
“The erosion of the alliance with Washington is the result, and it is giving full voice to anti-Saudi sentiment that has long percolated just under the surface in Congress, and in this White House as well,” says Alkadiri.
Is this going to be the pattern for the future? For Alkadiri, “we are witnessing a particularly fraught moment in US-Saudi ties, largely because Riyadh’s oil move risks damaging the Biden administration’s — and the Democratic Party’s — political interests at home. It has led to a lot of mud-slinging at the Saudi leadership.”
“Anger in Washington,” he adds, “will probably die down a bit over time, but the strategic differences that will shape the relationship moving forward have been exposed in the full light of day.”
What about the Saudi take? American officials, the Saudis say, "tried to position it as 'us versus Russia,'" pushing them into a corner where they needed to make a call. That didn’t work, and the Saudis pushed back with their own advice for the US: pump more of your own oil, and fix your refineries.
Riyadh also raised reservations about the lack of details from the US about the price cap plans on Russian oil. In the end, it came down to priorities, with the Saudis dropping diplomatic niceties.
"We are concerned first and foremost with the interests of the Kingdom of Saudi Arabia and then the interests of the countries that trusted us and are members of OPEC and the OPEC+ alliance," the Saudi energy minister said on the day of the announcement.
Bottom of the oil barrel: The tense dynamics of the Washington-Riyadh dyad, compounded by the ascent of MBS – who is now PM, a privilege that his lawyers argue provides him immunity from being tried in the US for the murder of journalist Jamal Khashoggi – suggest bilateral ties will be determined much more by “immediate imperative rather than strategic coordination,” says Alkadiri. We have moved beyond the US-Saudi relationship of old into a repositioning that could be “more competitive and confrontational.”This article comes to you from the Signal newsletter team of GZERO Media. Sign up today.
Elon Musk buying Twitter would be good news for Putin
Ian Bremmer shares his insights on global politics this week on World In 60 Seconds.
Why is OPEC+ cutting oil production? Why is the US unhappy about it?
Well, unhappy about it because it's 2 million barrels a day off the markets, and that means higher oil prices. Why is OPEC+ cutting production? Higher oil prices. They used to say they liked 80, but now that it's been 90, 100 to 120 for a while. They like 90, 100, 120. So, they're pushing it up. I don't think it has anything to do with politics. I don't think it has anything to do with the midterm elections in the US. I think it has a lot to do with the Saudis and the Emirates and the Russians. Yes, part of OPEC+, they've got similar interests on this and they're still talking as a consequence, going to make life a little bit more difficult for the average consumer at the pump. That's what we're talking about. Big question is, do the Iranians still move ahead with an Iranian deal? I would say no, but by the way, they're the one country that you'd expect that would've recognized the annexation of the Ukrainian regions and the North Koreans did. The Iranians did not. Let's watch what happens over the next few days. It's an interesting one.
Will there be fallout from North Korea firing a missile over Japan?
Well, thankfully there won't be direct fallout as you ask because it's not a missile with an active warhead on it. And of course, they have done this before. They've fired through Japanese territory before a number of years ago. This wasn't aimed at Tokyo. This was through Hokkaido. It wasn't high. It was relatively low, so it freaked out the Japanese more. Again, the fact that the North Koreans are providing support to Russia right now, specifically selling them weaponry, also recognizing this fake annexation on the ground in Ukraine, there's clearly coordination there, that is really angering the international community, and it shows Kim Jong Un that he has a new friend in Putin who's looking for friends around the world right now. So, I think that's what we're talking about, but I don't see significant escalation on the back of this by the Japanese, by the Americans.
Finally, why is Elon Musk finally purchasing Twitter good news for Putin?
Well, first of all, I'm not convinced he's finally purchasing Twitter. Until it's done, let's not assume it's done. We've been there before. We've heard that before. If you read the actual letter that was sent to the judge from Elon's lawyers, there was definitely a caveat at the end that you could drive a truck through that. Well, if the deal doesn't come through, the deal doesn't come through for any reason. But if it does happen, is it good for Putin? Sure, to the extent that Elon Musk is interested in free speech and no restrictions, which means anyone can say anything, which probably also means that there's really no problem with a lot of Russian disinformation online, and will he really do a lot against bots? We'll see. I suspect that as a guy who specifically is interested in promoting Russian talking points on ending the Ukraine war, and that is really what we're talking about here, that opinion would be algorithmically a lot more supported than it is presently. Not that I'm privy to what algorithms are going on inside Twitter, but ownership clearly matters here. So, it'll be interesting. It is a piece of good news for Putin in an environment where there isn't much for him. On balance though, the guy is in real trouble, not Elon, Putin.
UK Prime Minister Liz Truss and Chancellor of the Exchequer Kwasi Kwarteng attend the annual Conservative Party conference in Birmingham, Britain
What We’re Watching: UK PM's budget U-turn, OPEC mulls production cut, Yemen truce expires
Truss’s tax U-turn
Will it be enough? New British PM Liz Truss’s government has reversed course on its economic agenda. Chancellor Kwasi Kwarteng told the Conservative Party conference on Monday that a proposal to scrap the UK’s 45% tax rate for high-income earners would be axed. He cited the recent market chaos and vowed that there would be “no more distractions” in pursuing the rest of the government’s proposed tax policies. This caps a dismal couple of weeks for the new Tory leadership during which the Bank of England tried to calm markets after Kwarteng introduced £45 billion ($49 billion) worth of tax cuts despite sky-high inflation. The upheaval also caused the pound to plummet against the greenback (it regained some value on Monday). Truss and Kwarteng said they changed tack after listening to voters struggling amid the cost-of-living crisis. But it had become clear that the plan would have struggled to pass the House of Commons. The top tax rate accounted for just £2 billion of the proposed tax cuts, so this reversal will only go so far in placating opponents and markets. Truss addresses the party conference on Wednesday, and after her rocky start, we’ll be watching to see whether she can win support for her economic plan – and revive her party’s dismal approval rating enough to stay in the top job.
OPEC Plus prepares to cut oil production
OPEC Plus, the Saudi-led oil cartel plus Russia, is expected to announce a major cut in oil production at its meeting on Wednesday in a bid to reverse falling petroleum prices. Thanks to rising interest rates in the US and elsewhere, a sharp economic slowdown in China that’s partly related to its “zero-COVID” lockdown strategy, and the impact of inflation in many parts of the world, demand for oil has weakened in recent months. Prices have fallen by about one quarter since June to around $85 a barrel on Friday. If the Saudis lead the way on cuts, the decision will mark a rejection of pressure from the Biden administration to keep oil in the market to ease upward pressure on prices. Russia’s energy production future is also becoming an important question. By including Russia in output decisions, the Saudis and other OPEC members boost their own leverage in global markets, but Western sanctions and export controls, and Europe’s move to end its reliance on Russian energy, will reduce Russia’s ability to meet production targets in years to come, leaving Moscow a less valuable partner for OPEC over time.
Yemen’s best shot at peace (so far) falls apart
The warring parties in Yemen’s civil war failed to renew a UN-brokered ceasefire after six months, the longest and most hopeful lull in violence since the conflict began in 2014. The truce between the internationally recognized, Gulf-backed Yemeni government and the Iran-linked Houthi rebels who have taken over large swathes of the country, first went into effect in April. It partially restarted flights between the Houthi-controlled Sanaa airport and other Arab capitals, loosened the international blockade on the port of Hodeidah, which is also under Houthi control, and envisioned the Houthis lifting their siege of the strategic, government-controlled city of Taiz. The truce was renewed once after three months, but further talks fell apart in recent days as the two sides were unable to agree on a fuller opening of the airport, Hodeidah, or Taiz. They also clashed over funding the salaries of Yemen’s government bureaucrats, who haven’t been paid in years. The pact’s collapse raises the specter of fresh violence in a conflict where violence and famine have already killed close to half a million people.The Graphic Truth: Who produces the most oil in the world?
US President Joe Biden is visiting Saudi Arabia, where he hopes to persuade Saudi and Emirati leaders to increase the production of oil in a bid to bring gas prices down. The US is a top oil producer, along with Saudi Arabia and Russia. But the Saudis have two things the US doesn't: a unique capacity to quickly ramp up production and a leading role in the OPEC group of oil producers (and OPEC+, which extends to Russia and others). Here's a look at how US oil production stacks up against what the Saudis and Russians are pumping.
Biden's trip to Saudi Arabia is about more than pumping oil
Jon Lieber, head of Eurasia Group's coverage of political and policy developments in Washington, shares his perspective on US politics:
What is President Biden hoping to achieve by visiting Saudi Arabia?
This week the White House announced that President Joe Biden would make a visit to the Middle East. The most important part of the trip will be a stop in Saudi Arabia and a visit with Saudi Crown Prince Mohammed bin Salman. The President came into office saying he wanted to make the Saudis pariahs for their history of human rights abuses, including the kingdom's involvement in the 9/11 attacks, the murder of journalist Jamal Khashoggi, and an ongoing war in Yemen that has resulted in tens of thousands of civilian casualties. But unfortunately for President Biden, his Middle East strategy has followed the Mike Tyson maxim that everyone has a plan until they're punched in the mouth.
Biden has found his presidency overwhelmed by high and rising price levels coming out of the pandemic. Perhaps, nowhere as bad as in energy. The national average price for a gallon of gasoline topped $5 for the first time ever this week. It's likely the problem gets worse before it gets better, and there isn't much that President Biden can do about it. Domestic oil production is slow to come online and isn't as potent as it was five years ago because of industry concerns about the long-term ability to make profits off of new wells, which has left Biden looking around the globe for additional supplies to help ease the global crunch that is driving up energy costs.
The tangible results of a meeting with the Saudis are likely to overwhelm expectations in Washington and, potentially, force Biden to play a high political price by backing off of his commitment to isolate the Saudi Crown Prince in exchange for very little. Getting the Saudis to agree to a specific commitment to put more barrels of oil in the market is unlikely, though, a narrower agreement for the Saudis to increase production caps is possible. However, this would have very little impact on high domestic gas prices as refining capacity in the US continues to be overstretched, suggesting high prices, at least, throughout the summer.
Interestingly, however, this trip is about more than just pumping oil. The Biden administration wants to provide a counterweight to the Saudis' growing relationship with Beijing. They want to get help from the kingdom in isolating Russia in the wake of the war in Ukraine and get commitments to maintain the ceasefire in Yemen, which the Saudis may be open to if the US is willing to resume arm sales.
So this trip makes sense for Biden, even if it doesn't necessarily lower gas prices. But the fact he's making it at all shows how hard it is for a US president to fundamentally change the direction of US foreign policy, which has elevated the US reliance on Saudi Arabia for over 40 years.
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Biden could get Saudis to push Russia out of OPEC+
Ian Bremmer shares his insights on global politics this week on World In :60.
What does Biden hope to come from his trip to Saudi Arabia?
Well, first he hopes he isn't smashed by progressives in his own party after saying when he campaigned that he wanted to make Saudi Arabia into a pariah internationally. Traveling to Saudi Arabia and visiting with Mohammed bin Salman doesn't do that, but of course, $120 plus oil doesn't do that either. Look, I think it's sensible for him to go. I'm glad he's actually making the trip. In particular, he wants to see the Saudis increasing their oil production beyond present announced quotas to reduce the price. It's impacting Americans at the pump with record levels right now. He'd love to see Russia thrown out of OPEC Plus. I think that's plausible and beyond that, the possibility that Saudi Arabia and Israel would formally open diplomatic relations, an extension of the Abraham Accords which was one of the biggest accomplishments in foreign policy of the Trump administration. Biden's completely aligned with that and I think he's going to try to push on that. So, I do think there will be some direct takeaways from this trip that'll be positive for the Biden administration.
Is the bear market in the United States a prelude to a recession?
Certainly a lot of people think that. I've heard it directly from Larry Summers, I've heard it from Kristalina Georgieva at the IMF. I mean, I would say that a majority of economists out there believe that the United States is heading into a recession. Keep in mind that recessions of the United States come along fairly frequently. So it's not like it's that dramatic as long as it's narrow and it doesn't last very long, but still the mood has turned decidely negative, the level of inflation, the willingness of the Fed to go farther in raising rates and of course the impact on Biden's approval ratings, all of that in firmly fair market territory right now.
Will China's return to mass testing help combat China's COVID problem?
It certainly helps. They need a much greater level of surveillance, but the fact is you now have variants that are vastly more transmissible, infectious. They're closer to measles and that means that unless you are vaccinating everybody, and especially the older and those that are vulnerable from a health perspective, you can't prevent this disease from expanding wildly. What you have to do is make sure the people that get it, don't get really sick. I mean, we just had one bar in Beijing with 50 positive cases in one evening that clearly came from one person that showed up with COVID. That is an environment that doesn't lend itself to zero-COVID. It lends itself to, we have to live with the disease but we have to make sure we're vaccinating people, we have to make sure that we have adequate therapeutic responses. The Chinese are not where they need to be on either of those things. The disease has changed. China's response has not and that means zero-COVID is going to be with them for longer. The economic impact will last longer too.
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