The decision comes with US midterm elections around the corner, applying domestic pressure on the Biden administration with gas price hikes set to hit consumers hard.
It appears last week’s decision by OPEC to cut oil production by two million barrels has triggered more than just geopolitical tremors for Washington to deal with.
Saudi Arabia, the US’ longtime Gulf ally that leads the 13-nation union, cut output in a bid to boost prices, angering Washington.
The move prompted the US to accuse Riyadh of siding with Russia, a claim rejected by the Saudi government. Saudi Arabia's Foreign Minister Prince Faisal bin Farhan Al Saud said to Al-Arabiya channel on Tuesday that the OPEC+ decision was purely economic and was taken unanimously to stabilise the market.
Calling it a “hostile act”, the Biden administration said it was “re-evaluating” the Saudi relationship.
Reeling from growing economic pressure at home and next month’s midterm elections fast approaching, OPEC’s November cut is set to drive up gas prices for American consumers as well as put the Biden administration’s foreign policy priorities under further pressure.
“I’m not going to get into what I’d consider and what I have in mind. But there will be consequences,” President Biden told CNN on Tuesday.
OPEC’s decision was widely seen as a diplomatic slap in the face since Biden travelled to Saudi Arabia in July and met with Crown Prince and Prime Minister Mohammed bin Salman (MBS).
Biden, who had referred to Saudi Arabia as a “pariah” state during his 2020 election campaign, flew to Jeddah in July for a Gulf summit to try mending bilateral relations but left without securing a deal for higher oil production. Ties have been strained between the kingdom and Washington since Biden took office in 2021.
Many on the Beltway believe the price hikes were more than just a geopolitical move, but Riyadh also placing its thumb on the scale of US electoral politics to hamper the Democrats in the upcoming midterms.
“The Saudis are working to get Trump re-elected and for MAGA Republicans to win the midterms,” Bruce Riedel, a senior fellow of the Brookings Institution, told The Intercept. “Higher oil prices will undermine the Democrats.”
“This is MBS’s October surprise,” said Trita Parsi, executive vice president of the Quincy Institute for Responsible Statecraft. “This is his election interference. It forces Biden to make a choice: Will he protect America’s democracy and Democratic lawmakers in Congress, or will he triple down on a flawed gamble that says that the US has no choice but to acquiesce to Saudi Arabia to prevent Riyadh from aligning with Russia?”
Riyadh’s cosy relationship with the Trump administration was marked by a $350 billion weapons sale, as Saudi Arabia accounted for a quarter of US arms exports during Biden’s predecessor's one term in office.
There are several policy tools at the Democrats' disposal to push Riyadh to back off production cuts, with Senator Bob Menendez (D-NJ), chair of the Senate Foreign Relations Committee, stating that he would use his power to block all weapons sales to the kingdom.
Meanwhile, the Biden administration is discussing cancelling an upcoming meeting in Riyadh related to air and missile defence cooperation.
A global energy rivalry
Part of the reason OPEC wants to keep prices high comes down to the need to have extra income for their expenditure budget and to maintain a healthy investment level in the oil industry.
The IMF in April projected Saudi Arabia’s breakeven oil price – the oil price at which it would balance its budget – at $79.20 a barrel. While Riyadh does not disclose its breakeven oil price, a Reuters report suggested that a preferred price level would be around $90-$100 a barrel for Brent crude.
Add Russia’s military operation in Ukraine to the mix, and an economic and energy war has been incubating through the 8-month period following Western sanctions against Russia.
OPEC views moves by the US and the EU to push back against Russia’s oil exports with scepticism, particularly the latest move by the G7 to put a cap on the prices at which Russia can sell its oil.
OPEC sees such moves as a paradigm shift, argues Indian foreign policy expert M K Bhadrakumar, as it “implicitly challenges the cartel’s assumed prerogative to ensure that global oil supply matches demand”.
And so, OPEC has proactively pushed back in the form of oil production cuts to keep prices above $90 per barrel.
“[The West’s] move is precedent-setting – namely, to prescribe for geopolitical reasons the price at which an oil-producing country is entitled to export its oil. If it is Russia today, it can as well be Saudi Arabia or Iraq tomorrow. The G7 decision, if it gets implemented, will erode OPEC’s key role regulating the global oil market,” said Bhadrakumar.