Biden has “only bad options” to lower oil prices

HOUSTON — When President Biden meets with Crown Prince Mohammed bin Salman in Saudi Arabia, he will follow in the footsteps of presidents like Jimmy Carter, who traveled to Tehran in 1977 to exchange toast with the Shah of Iran on New Year’s Eve.

Like the prince, the Shah was an unelected monarch with a tarnished human rights record. But Mr. Carter had to celebrate with him for a cause that was of great concern to people back home: cheaper gasoline and safe oil supplies.

As Mr. Carter and other presidents have learned, Mr. Biden has a few precious cost-cutting tools at the pump, especially when Russia, one of the world’s largest energy producers, launched an unprovoked war against a smaller neighbour. Under Carter, the oil supplies needed by Western countries were threatened by revolutions in the Middle East.

During the 2020 campaign, Biden vowed to turn Saudi Arabia into a “pariah” state for the assassination of prominent dissident Jamal Khashoggi. But officials said last week that he plans to visit the kingdom this summer. This was the latest sign that oil had regained its centrality in geopolitics.

Just a few years ago, many Washington lawmakers and Texas oil and gas executives were patting their backs for an energy boom that turned the United States into a net exporter of oil and petroleum products and made it more energy independent. With prices soaring, that achievement now appears illusory.

The United States is the world’s largest producer of oil and natural gas, but it accounts for only 12 percent of the world’s oil supply. The price of oil, the main cost of gasoline, can still go up or down depending on events halfway around the world. No president, however powerful or efficient, can do much to control him.

These facts are a cold comfort to Americans who find that a stop at a gas station can easily cost a hundred dollars, much more than just a year ago. When fuel prices rise, consumers demand action and can turn on bosses who seem unwilling or unable to bring them back down.

Presidents are always looking forward to the next election when their jobs or their party’s hold on power is at stake, and presidents can find it impossible not to try to persuade or appeal to foreign and domestic oil producers to explore for more oil and pump it faster.

“The president has to try,” said Bill Richardson, the Clinton administration’s Secretary of Energy. “Unfortunately, there are only bad options. And any alternative options are probably worse than asking the Saudis to increase production.”

Two other oil-producing countries that could increase production – Iran and Venezuela – are adversaries of the United States that Western sanctions have largely cut off from the global market. Making any deal with their leaders without obtaining major concessions on issues such as nuclear enrichment and democratic reforms would be fraught with political risks for Mr. Biden.

Energy experts said that even Saudi Arabia, widely seen as having the largest ready-to-use spare production capacity, could not quickly lower prices on its own. That’s because Russian production is declining and could fall further as European countries reduce their purchases from the country.

“Presidents may be the most powerful figure in the US government, but they can’t control the price of oil at the pump,” said Chase Untermeyer, the US ambassador to Qatar in the George W. Bush administration. “Even if prices go down for reasons beyond his control, President Biden probably won’t get much credit for that either.”

Some Republican lawmakers and oil executives have argued that Biden could do more to increase domestic oil and gas production by opening more federal land and waters to oil exploration in places like Alaska and the Gulf of Mexico. It could also relax regulations on pipeline construction so Canadian producers can send more oil south.

But even those initiatives — which environmentalists and many Democrats oppose because they would hamper efforts to combat climate change — will have little immediate effect because new oil wells take months to start production and pipelines can take years to build.

“If management joins in with every aspect of the industry’s wish list, it will have a modest impact on today’s prices because it will mostly relate to production in the future,” said Jason Bordoff, director of the Center for Global Energy at Columbia University. Politics He was an advisor to President Barack Obama. And it will come with significant downsides on the political, social and environmental fronts. “

Biden and his aides have been urging US oil officials to pump more oil, with little success. Most oil companies are reluctant to expand production because they fear that more drilling now will lead to a glut that will lower prices. They remember when oil prices fell below zero at the beginning of the pandemic. Big companies such as ExxonMobil, Chevron, BP and Shell largely stuck to the investment budgets they set last year before Russia invaded Ukraine.

Energy traders became so convinced that supply would remain so limited that record US and world oil prices soared on news that Mr. Biden was planning to travel to Saudi Arabia. Oil prices rose to about $120 a barrel on Friday, and the national average price for a gallon of regular gasoline was $4.85 on Sunday, according to AAA, up more than 20 cents from the previous week and $1.80 from a year ago.

Another effort by the Biden administration that seemed uneasy was the decision to release 1 million barrels of oil per day from the Strategic Petroleum Reserve. Analysts said it was difficult to determine any impact of these releases.

Biden’s team has also held talks with Venezuela and Iran, but progress has been stalled.

The administration recently renewed the license, which partially exempts Chevron from US sanctions aimed at crippling Venezuela’s oil industry. In March, three administration officials traveled to Caracas to lure President Nicolas Maduro into negotiations with the political opposition.

As part of another sanctions relief, Spain’s Repsol and Italy’s Eni may start shipping small quantities of oil from Venezuela to Europe within a few weeks, Reuters reported on Sunday.

Venezuela, once a major exporter to the United States, has the world’s largest oil reserves. But its oil industry is so crippled that it can take months or even years for the country to significantly increase its exports.

With Iran, Biden is seeking to revive the 2015 nuclear deal that President Donald J. Trump withdrew from. The deal could free Iran to export more than 500,000 barrels of oil per day, easing a global supply crunch and offsetting some barrels not sold by Russia. Iran also has nearly 100 million barrels in storage, which can be released quickly.

But it seems that the nuclear talks are mired in disagreements and are not expected to bear fruit anytime soon.

Of course, any deals with Venezuela or Iran could themselves become Biden’s political commitments because most Republicans and even some Democrats oppose compromises with the leaders of those countries.

“No president wants to remove the IRGC from the terrorism list,” Ben Cahill, an energy expert at the Center for Strategic and International Studies in Washington, said of one of the sticking points in talks with Iran. “Presidents are concerned about any moves that appear to make political sacrifices and win over America’s adversaries.”

Foreign policy experts say that while energy crises during war are inevitable, they always seem to surprise administrations, which are generally unprepared for the next one. Mr. Bordoff, an Obama adviser, suggested the country invest more in electric cars and trucks and encourage more efficiency and energy conservation to reduce energy demand.

“The history of oil crises shows that when there is a crisis, politicians run like chickens with their heads cut off, trying to figure out what they can do to provide immediate relief to consumers,” Bordoff said. He added that US leaders need to better prepare the country “the next time there is an inevitable oil crisis.”