Last October, OPEC+, a group of 23 oil-producing countries including Saudi Arabia and Russia that controls 40% of world oil production, announced that it would cut production by 2 million barrels per day — roughly equivalent to 2% of the world’s oil supplies. The group said that the production quota would continue for 14 months until the end of 2023 and attributed the cuts to the “uncertainty that surrounds the global economic and oil market outlooks.”
US President Joe Biden immediately condemned the decision, arguing that the production cuts amounted to an economic lifeline to Russian President Vladimir Putin’s war effort in Ukraine. Biden’s administration took particular issue with the role of Saudi Arabia, the world’s largest oil producer and de facto leader of OPEC+, and vowed “consequences.”
Saudi Arabia knew the oil production cuts “would increase Russian revenues and blunt the impact of sanctions. That is the wrong direction,” White House National Security Council spokesperson John Kirby said after the meeting. “We are reevaluating our relationship with Saudi Arabia in light of these actions.” Saudi Arabia’s government responded that OPEC+ member states had unanimously agreed to the cuts and said the decision was made for “purely economic reasons.”
The cuts and war of words that followed may have marked a new low for US-OPEC+ relations. “There were already tense relations with the Biden administration and many members of OPEC+ and this just sparked it off,” Paul Sullivan, a nonresident senior fellow with the Atlantic Council’s Global Energy Center, told Al-Monitor.
Going into next year, analysts say there is little indication that US-OPEC+ tensions will ease. The rift has the potential to escalate further, depending on whether oil prices begin to rise again.
Just months before the OPEC+ decision, the relationship between the two sides appeared to be improving. In July, Biden met with Crown Prince Mohammed Bin Salman in Saudi Arabia, where the two leaders famously fist-bumped one another before a face-to-face meeting.
Analysts considered the Riyadh meeting itself a capitulation to Saudi Arabia, considering that Biden had sharply criticized the de facto Saudi ruler for approving the assassination of Washington Post columnist Jamal Khasshogi and other human rights abuses and vowed to make the crown prince a “pariah” during his presidential campaign.
At the meeting, Biden lobbied bin Salman for OPEC+ to increase oil production — a measure aimed at countering Russia but also likely motivated in part to reduce then-skyrocketing oil prices in the run-up to November congressional elections, said Ellen R. Wald, president of Transversal Consulting and author of “Saudi, Inc.: The Arabia Kingdom’s Pursuit of Profit and Power,” in a conversation with Al-Monitor.
But Biden’s pleas ultimately came up empty.
“Biden had a fist bump with the prince and made nice,” said Dan Dicker, founder of The Energy Word. “But he didn’t come back with any barrels [of oil]. So Biden had to at least posture … that [Bin Salman] could not do what [Biden] wanted and just completely get away with it.”
Wald explained that it was in Saudi Arabia’s interest to not boost production given falling oil prices and OPEC+ projections that demand would continue to lag. “It turned out that the Saudis had a valid market based reason to make that cut,” she said. “The Saudis don’t really care about Russia’s invasion of Ukraine.”
Ultimately, Biden’s administration did not impose the punitive measures against Saudi Arabia that it had warned about, said Dicker. Still, experts say that Biden’s critique of Saudi Arabia’s human rights record and belief that OPEC+ may be in part responsible for supporting Russia’s war in Ukraine are genuine, and represent significant cleavages in the relationship. “Whenever OPEC+ does something beneficial for OPEC+, they’re doing something beneficial for Russia,” said Sullivan. “And that’s a big splitting point.”
Looking forward
Despite the OPEC+ cuts, Biden still managed to drag oil prices down to below $80 per barrel today after a high of over $120 per barrel this summer, largely through his administration’s decision to sell 180 million barrels of crude oil through the United States’ Strategic Petroleum Reserve this year.
But now that the reserve has been mostly emptied, the United States has limited tools at its disposal to ensure prices stay low, analysts say. “OPEC+ remains the swing producer in the global oil market and could counter any response by the US to lower prices with even greater firepower,” Matt Smith, lead oil analyst for Kpler, told Al-Monitor.
Yet the OPEC+ production cuts are only one of myriad volatile factors that will determine oil prices next year. Some economists warn of a looming global recession, which would drag down oil prices. Others project China’s emergence from its pandemic restrictions to spike global oil demand and exert upward pressure on prices.
But Biden’s depletion of the reserves is why at least some analysts are projecting oil prices to begin rising again next year.
“A lot of this drive down in prices has not been fundamentally based. It’s been sort of artificial, so when the fundamentals start to be felt,” said Dicker, oil is “going to take off like a rocket.”
A rise in oil prices may augur more trouble ahead in US-OPEC+ relations.
“If oil prices hit triple digits next year, and the economy is not good, then I think we’re definitely going to see the [Biden] administration do more OPEC+ shaming,” said Wald. Congressional pressure to combat OPEC+ could be even stronger. She mentioned that if oil prices continue to rise, US politicians may reintroduce the No Oil Producing and Exporting Cartels Act, which, if passed into law, would allow the US attorney general to sue the organization under antitrust grounds. Wald said that such an extreme measure is improbable, and Biden would likely veto the bill if it passed through Congress.
Other analysts predict that 2023 may bring some relief to US-OPEC+ relations. “I think a lot of people in Washington have calmed down a bit about this,” said Sullivan, adding that he thinks they realized that “it’s much more important to continue US bilateral relations with important states like Saudi Arabia … rather than let this OPEC+ decision split the US away from them.”