OPEC+ Oil Production Slash Exposes Limits of Biden's Pressure on MBS, Putin

The decision made by Russia, Saudi Arabia and other nations that make up the world's oil cartel and its partners to significantly slash production will likely produce effects felt across the globe the globe — including in the U.S., where President Joe Biden has appealed to Riyadh and other oil-rich Arab states for greater output while at the same time maintaining economic pressure on Moscow over its war in Ukraine.

As the expanded format of the Organization of the Petroleum Exporting Countries (OPEC+) opted Wednesday to cut current baseline production by about 2 million barrels per day (BPD), an effective drop of around 1 million BPD, the limits of the Biden administration's pressure tactics were on full display.

Reacting to the news, White House Press Secretary Karine Jean-Pierre told reporters aboard Air Force One on Wednesday, "It's clear that OPEC+ is aligning with Russia with today's announcement."

And in a joint statement, White House national security adviser Jake Sullivan and National Economic Council Director Brian Deese said Biden "is disappointed by the shortsighted decision by OPEC+ to cut production quotas while the global economy is dealing with the continued negative impact of [Russian President] Putin's invasion of Ukraine."

"At a time when maintaining a global supply of energy is of paramount importance," the statement added, "this decision will have the most negative impact on lower- and middle-income countries that are already reeling from elevated energy prices."

U.S. consumers could feel the pain as well in the form of higher fuel prices, as they did earlier this year. The White House has been fighting for months to bring those prices down, and Sullivan and Deese said Biden would order the Department of Energy to release another 10 million barrels of oil from the Strategic Petroleum Reserve next month.

Their statement said that Biden would continue to release barrels from the national reserve "as appropriate," while calling on energy companies "to keep bringing pump prices down" and consulting with members of Congress for further measures.

As to why a last-ditch effort by the U.S. to sway OPEC+ away from its anticipated reduction failed, Abhi Rajendran, an adjunct scholar at Columbia University's Center on Global Energy Policy who also serves as director of oil market research for Energy Intel, told Newsweek that "the alignment within Opec+ is strong, politically and with regard to oil."

"The U.S. was never going to crack that," he added.

Russian, President, Putin, meets, Saudi, Prince, MBS
Russian President Vladimir Putin (L) meets with Saudi Arabia's Crown Prince Mohammed bin Salman in Riyadh, Saudi Arabia, on October 14, 2019. While Saudi Arabia has condemned Russia's war in Ukraine, Riyadh and Moscow have continued to find avenues for cooperation, even after U.S. President Joe Biden made his first visit to the kingdom in July following harsh criticism of Crown Prince Mohammed bin Salman. ALEXEY NIKOLSKY/SPUTNIK/AFP/Getty Images

In addition to Saudi Arabia, other OPEC members include Algeria, Angola, the Republic of Congo, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, United Arab Emirates and Venezuela. Joining Russia as part of the expanded group are Azerbaijan, Bahrain, Brunei, Kazakhstan, Malaysia, Mexico, Oman, Philippines, Sudan and South Sudan.

In a statement shared with Newsweek, OPEC said Wednesday's decision was made "in light of the uncertainty that surrounds the global economic and oil market outlooks, and the need to enhance the long-term guidance for the oil market, and in line with the successful approach of being proactive, and pre-emptive."

For Moscow, the benefits of the new arrangement were clear, especially as the Kremlin saw the European Union and G7 planning a potential price cap on Russian maritime oil imports. The measure was proposed last week by the European Council in the wake of internationally unrecognized referendums that took place under Russian and allied separatist administration in four Ukrainian regions, producing near-unanimous votes for their annexation into the Russian Federation amid the ongoing conflict.

"Russia prefers higher oil prices and wants to cut supply in response to the price cap plan," Rajendran said. "This is a step to achieving both of those."

Speaking to reporters after OPEC+ announced its plan, Russian Deputy Prime Minister Alexander Novak, who attended the gathering, said Moscow was "against such nonmarket instruments" as price caps, as cited by the state-run TASS Russian News Agency.

"Such precedents are very harmful for the energy market," he added. "This leads only to a deficit, to a price hike; consumers will pay for that, if they want to introduce such a mechanism."

He warned that "it is not feasible for us to support deliveries if such a tool is introduced to consumers that will use the price cap" and that Russia "will supply oil only to those supporting market-based pricing mechanisms."

As for Riyadh, Saudi Arabia has increasingly sought to pull its own weight in global affairs, especially on energy politics, a realm it dominates as the world's top oil exporter and de facto leader of OPEC. Biden, who has been an outspoken critic of Crown Prince Mohammed bin Salman's human rights record, visited the kingdom for the first time as president in July in an attempt to smooth over frictions in their partnership, but the visit appeared to produce little success in alleviating pressure on the oil market.

Wednesday's decision serves to drive that point home.

Responding to a CNBC reporter's question as to whether the latest move constituted hostility toward those such as the U.S. warning against higher energy prices, Saudi Energy Minister Prince Abdulaziz bin Salman, son of King Salman and half-brother of Crown Prince Mohammed, said, "show me where is the act of belligerence?"

Prince Abdulaziz also refused to take a question from Reuters, citing what he said was "wrong" coverage insinuating that Riyadh and Moscow were collaborating to set oil price targets of around $100 per barrel.

Argus Media oil and gas analyst Nader Itayim, who is in Vienna to attend the OPEC+ proceedings, analyzed why the organization and its representatives are attempting to distance themselves from any narratives that geopolitics played a role in their decisions.

"Opec, and now Opec+, prides itself on being a technical organization that leaves politics at the door, so to speak," Itayim told Newsweek. "That's the only way an organization with so many members, some of which clearly don't see eye to eye in the political sphere, functions and reached consensus on policy moves. So it wouldn't ever frame this, or any other decision it takes, politically."

Itayim said that OPEC+ "took its decision to cut targets by 2 milion BPD to be proactive and essentially get ahead of issues that are right around the corner: slowing global demand for oil and fears around a recession."

"Although balances are tight," he added, "it does not see a shortage of supply in the market at the moment, and even less so early next year as this demand weakness kicks in."

"OPEC+ wants to be 'ahead of the curve,'" he added.

The approach runs contrary to the Biden administration's demands for more oil global production, especially as a lack of refining capacity has played heavily into the stark rise in fuel prices for the U.S.

"As far as the US argument goes — to produce more to help prices at the pump come down — Saudi Arabia and Opec+ don't subscribe to this," Itayim said. "For one thing, they look at oil prices today, and comparing Brent or WTI at the end of September, say, versus at the start of the year, prices are only 6-8% up. Prices at the pump are due not to a lack of oil supply, but a lack of refining capacity."

"And if you compare the price of crude oil over this period versus that of other energies, it's night and day," he added. "The increase in the price of gas, LNG, coal over that period is 60%-70%, maybe more."

OPEC+, representatives, gather, after, Vienna, Austria, meeting
Representatives of OPEC member countries attend a press conference after the 45th Joint Ministerial Monitoring Committee and the 33rd OPEC and non-OPEC Ministerial Meeting on October 5 in Vienna, Austria. The OPEC+ oil cartel met for the first time face-to-face since COVID-19 curbs were introduced in 2020 and the group decided to slash production based on current baseline figures by 2 million barrels per day. VLADIMIR SIMICEK/AFP/Getty Images

The move has nonetheless been met with outrage in Washington, especially among Democrats, including Senator Chris Murphy of Connecticut, who called for a reevaluation of the U.S. foreign policy toward Saudi Arabia in an interview Tuesday with CNBC ahead of the anticipated OPEC+ cut.

He reacted to Wednesday's decision on social media by doubling down on his position.

"I thought the whole point of selling arms to the Gulf States despite their human rights abuses, nonsensical Yemen War, working against US interests in Libya, Sudan etc, was that when an international crisis came, the Gulf could choose America over Russia/China," Murphy tweeted.

Representative Ro Khanna of California also had choice words regarding the longstanding partnership between Washington and Riyadh in an interview with The Washington Post on Wednesday.

"President Biden should make it clear that we will stop supplying the Saudis with weapons and air parts if they fleece the American people and strengthen Putin by making drastic production cuts," Khanna said.

"They need us far more than we need them," he added.

But Elie Habalian, who previously served as Venezuela's governor for OPEC, told Newsweek that, while Moscow clearly benefited from the arrangement, "Saudi Arabia and the United Arab Emirates cannot be blamed" for this outcome given that Russia had yet to be totally ostracized by the international community and continued to be an influential energy player.

And, at the same time, he pointed several factors behind the deficiencies in Washington's ability to influence the calculus of the Arabian Peninsula monarchies despite their long shared history.

"OPEC does not understand the attitude of the West of trying to impose on Russia decisions related to prices and quantities when the world oil market must respond to the mechanism of supply and demand in order to guarantee its stability," Habalian said, "for whose achievement only the mechanism of regulating the supply of the resource is used."

Another reason Habalian highlighted for the limited hand of the U.S. and other Western countries, to include the European Union, was a "crisis" in extraction and refinery investment as a result of ecological concerns and environmentalist policies. He said this position is "of great concern" to Saudi Arabia and its national oil titan ARAMCO, which can now use additional income as a result of the production cut and anticipated price increase "for future investments, and thus guarantee the continuity of the oil business with the availability of resources."

And beyond this still there existed what Habalian described as "circumstantial reasons for the attitude and resistance of Saudi Arabia toward cooperating with President Biden" after seven decades of partnership between Riyadh and Washington forged during World War II. These factors tied in to lingering bitterness over the decision by former President Barack Obama to bypass Arab concerns in pursuing the Iran nuclear deal that Biden is seeking to revive, as well as Democratic Party backlash against Crown Prince Mohammed over his alleged role in the killing of journalist Jamal Khashoggi at the Saudi consulate in Istanbul, Turkey four years ago.

Biden's trip to Saudi Arabia in July was widely seen as a concession to the powerful royal at a time when not only oil and gas prices were at stake but geopolitical balance given the U.S. leader's vow not to "walk away" from the Middle East "and leave a vacuum to be filled by China, Russia or Iran" during his address in the kingdom.

But as Habalian noted, Riyadh and others were already keenly aware of their key position amid growing great power competition and seek to leverage that.

"The Arabs, far from owing cooperation to the West, see in the new developing world order an opportunity to demand concessions from Washington in their favor," Habalian said, "since it needs the Arab world in the current conflict between the West and the Russia-China pairing."

OPEC+, oil, barrels, per, day, production, chart
A chart provided by the expanded Organization of the Petroleum Exporting Countries (OPEC+) shows oil production from November 2022 projected through December 2023 following a new deal to slash production among member states. Organization of the Petroleum Exporting Countries