The relationship between the U.S. and OPEC has always been a fraught one, with America pushing the cartel to slash production when oil prices crash and open the taps when prices soar. While cooperation between the two oil and gas powers is normally focused on supply and demand considerations, geopolitical tensions heavily influence any outcome. Today, as tensions between OPEC and the U.S. spike, the timing for both the global economy and energy markets couldn’t be worse.
While challenges to the U.S.-OPEC relationship are nothing new, tensions have spiked in the post-pandemic context, made worse by ongoing global energy shortages and rising prices. The shift became clearer than ever this month when, at an OPEC news conference, Saudi Energy Minister Prince Abdulaziz bin Salman was asked whether the group’s decision to cut production by 2 million barrels a day was an act of aggression and he responded by laughing and asking “where is the act of belligerence?”. OPEC’s Secretary General then added, “everything has a price, energy security has a price as well”.
Earlier this month, OPEC+ announced it would be lowering its member states' production target by 2 million bpd. Both the U.S. and European powers were outraged about the cut, which will serve to worsen both the energy crisis and inflation. But OPEC+ insists that its move was in response to global economic uncertainties and rising inflation, which it feared would drive down oil demand. The organization claims it wants to avoid another pandemic-like situation in which countries worldwide are forced to stockpile excess oil as demand plummets.
OPEC has been criticized for its decision, with member states prioritizing high oil prices which will both hurt the global economy and help Russia to fund its invasion of Ukraine. President Biden warned that Saudi Arabia will face consequences for the decision to cut production, hoping that threats will be more effective than his pleas earlier this year that the country boost production in order to ensure supply and lower prices. After oil prices dropped from a high of $120 a barrel to around $80 a barrel over the summer months, OPEC members claim to have grown worried that supply would overshoot demand, driving them to support the production cut. For outside observers, however, it's hard to ignore the geopolitical implications of this decision.
Tensions between the U.S. and OPEC+ have been mounting for years, with different geopolitical perspectives and partnerships influencing their contrasting approaches to global energy market management. In the post-pandemic environment, the geopolitical influence of OPEC, and notably Saudi Arabia has grown. Saudi Arabia has managed to strengthen its ties with both Russia and China while maintaining its relationship with the U.S. Now, as the U.S. looks to keep prices low, it is clear that Biden has far less influence over his allies in the region than he had hoped. In realizing this lack of influence, the U.S. is determined to reassert itself.
The U.S. has threatened action against OPEC’s decisions several times in recent years. The No Oil Producing and Exporting Cartels Act (or, the NOPEC bill) was put to U.S. Congress in response to OPEC being an “unlawful monopolist”. But, despite threats, no action has ever been taken, as the consequences both geopolitically and for oil markets would be unpredictable. Despite the U.S. introducing a NOPEC-style bill around 16 times since 2000, the bill has always failed to pass. On Tuesday, the NOPEC bill was once again moved to the Senate floor, although it likely won’t be debated until after the mid-terms.
As the mid-terms approach, tensions between the U.S. and OPEC are soaring once again. The immediate impact of higher fuel prices, energy bills, and inflation on the electorate will be of primary concern to Biden, but the broader trend is also worrying. The U.S. will be eager to increase its influence over OPEC, whether through consequences or cooperation. In the past, these moments of tension have eventually cooled and cooperation has restarted, but we live in uncertain times and Russia’s war in Ukraine and a global energy shortage may push the U.S. to take more aggressive action.
By Felicity Bradstock for Oilprice.com
More Top Reads from Oilprice.com:
- Jamie Dimon Says Oil And Gas Is The Only Way To Protect America
- Biden Plans To Refill The SPR When Oil Prices Fall Below $72
- China To Stop Reselling LNG To Europe
It can operate at its best when there is no interference in its decisions and no threats to itself and its members. It prefers cooperation with those concerned but it will retaliate if threatened or sued under false pretences.
The United States behaviour toward OPEC since its founding in 1960 and later toward OPEC+ was abominable. It wanted to destroy the organization or at least undermine it or at best bring it under its thumb.
1- When US shale oil was a force to be reckoned with, US oil producers were encouraged by the government to overproduce even at a loss to undermine OPEC decisions and force prices down without any thoughts to the livelihood of the OPEC producers.
2- Former President Trump often threatened OPEC+ members if they didn’t increase production to help reduce oil prices for the benefit of the US economy.
3- President Biden repeatedly asked OPEC+ to increase production to stem the rise in oil prices when neither the world nor OPEC+ had a spare production capacity because of underinvestment spurred by Western countries’ green policies.
Yet, President Biden is accusing OPEC+ of supply and price manipulation when the US is a past master in the manipulation of oil supply and prices. Few examples will support my claim.
1- Former President Trump urging US shale oil producers to overproduce even at loss and flood the global oil market so as to force the oil price down.
2- President Biden’s release of 195 million barrels from the SPR so far to force down oil prices thus interfering with free market operations.
3- President Biden repeated calls to OPEC+ to increase production for his own political benefits.
4- The US and the EU capping the price of Russian crude exports despite the fact that Russia is a member of OPEC+.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert