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Biden threatens consequences for Saudi Arabia after OPEC cut

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US President Joe Biden and Saudi Crown Prince Mohammed bin Salman arrive for the family photo throughout the Jeddah Security and Development Summit (GCC+3) at a hotel in Saudi Arabia’s Red Sea coastal city of Jeddah on July 16, 2022.

Mandel Ngan | Afp | Getty Images

President Joe Biden is offended at Saudi Arabia for its decision to slash oil production together with its OPEC allies against U.S. wishes, and he’s made no secret of it. 

With the worldwide economy on a knife-edge and energy prices high, Washington sees the dominion’s move – which it made in coordination with Russia and other oil-producing states – as a snub and a blatant display of siding with Moscow. 

The oil producer group in early October announced its largest supply cut since 2020, to the tune of two million barrels per day from November, which its members say is designed to spur a recovery in crude prices to counter a possible fall in demand. 

For this, Biden said in an interview with CNN on Tuesday that there can be “consequences.” He didn’t go into further detail as to what those consequences could be.

But what are the Biden administration’s options, and will they backfire?

Weapons and anti-trust laws

The Saudi-U.S. relationship was founded, broadly speaking, on the principle of energy for security. Washington has because the Forties provided billions of dollars in military and security aid to Saudi Arabia. But lately, and particularly because the Obama administration began making diplomatic inroads with Iran, Riyadh feels that the U.S. commitment to its security has waned. 

“The reality is, neither side has been holding up their end of the discount for nearly 10 years now,” Michael Stephens, an associate fellow on the Royal United Services Institute in London, told CNBC. 

“And what you are seeing, I believe, are everlasting fractures in the connection which can be based on the proven fact that neither side really sees as much strategic profit in the opposite as they did 20 years ago,” Stephens said, adding that Saudi Arabia’s OPEC oil production cut “is a mirrored image of that.”

The potential “consequences” Washington can put into motion include cutting its military support to the Saudi kingdom, and going after OPEC with U.S. laws.

A file photo of cannisters containing Patriot missiles to intercept missiles fired at Saudi Arabia or its neighboring countries.

Greg Mathieson | Mai | The LIFE Images Collection | Getty Images

Indeed, just at some point before Biden’s comments, Sen. Bob Menendez, D-N.J., chairman of the Senate Foreign Relations Committee, demanded that the U.S. immediately halt all cooperation with Saudi Arabia — including weapons sales.

“The US must immediately freeze all elements of our cooperation with Saudi Arabia, including any arms sales and security cooperation beyond what is totally needed to defend U.S. personnel and interests,” Menendez said in an announcement.

In an earlier interview with CNBC, Sen. Chris Murphy, D-Conn, asked, “What is the point of looking the opposite way when the Saudis chop up journalists and repress political speech inside Saudi Arabia if when the chips are down, the Saudis effectively select the Russians over the U.S.?”

Even Sen. Bernie Sanders, I-Vt., weighed in, demanding in a tweet that, “If Saudi Arabia, certainly one of the worst violators of human rights on the earth, desires to partner with Russia to jack up US gas prices, it will possibly get Putin to defend its monarchy. We must pull all US troops out of Saudi Arabia, stop selling them weapons & end its price-fixing oil cartel.”

Beyond withholding military aid, there are legal channels the U.S. government can pursue. 

One is the NOPEC bill, which stands for No Oil Producing and Exporting Cartels. This may classify OPEC as a cartel and subject its members to anti-trust laws.

Something long discussed by lawmakers, the bill is designed to guard U.S. consumers and businesses from artificial oil spikes.

It passed a Senate committee in early May and hasn’t yet been signed into law, but could expose OPEC countries and partners to lawsuits for coordinating supply cuts that raise global crude prices.

The bill would still should be passed by the total Senate and House and signed into law by the president to enter effect. OPEC ministers have previously criticized the NOPEC bill, warning it could bring greater chaos to energy markets.

Consequences for the U.S. – and for crude prices

The choice by OPEC+ – which constitutes OPEC and its non-OPEC allies like Russia – to chop its output “underscores the extent to which the Biden administration has lost its ability to influence Saudi OPEC+ policy,” said Torbjorn Soltvedt, principal MENA analyst in danger intelligence firm Verisk Maplecroft.

“The White House has few good options despite Biden’s warning of ‘consequences’ after the cut,” he said, noting U.S. lawmakers’ threats of anti-trust laws and removal of U.S. military assets from Saudi Arabia.

While each courses of motion would send a transparent message, this might backfire for each the U.S. and for crude prices. 

“Each of those options would threaten to interrupt already fraught relations, which in turn would put even greater upward pressure on oil and fuel prices,” Soltvedt said. 

Democrats rally against Saudi Arabia after OPEC+ slashes oil production

“Briefly, a breakdown in U.S.-Saudi relations would mean a better Middle East risk premium for the worldwide oil market and better oil and fuel prices,” he explained. “That is the other of what the White Home is trying to realize ahead of midterm elections in November.”

It is also key to notice that the two million barrel per day cut won’t in actual fact be as big as that headline figure; several member states have already been far in need of their individual production ceilings, and Iraq for example has indicated it’ll be producing greater than its assigned quota. 

Still, many American politicians have long been out of patience with the character of the U.S.-Saudi relationship, especially as U.S. imports of Saudi oil have shrunk through the years and greater than 80% of the Middle East’s crude exports now go to Asia. 

This has made a growing variety of U.S. lawmakers query, Soltvedt said, “why the American navy should underwrite the safety of Middle Eastern oil exports when those barrels are increasingly going East quite than West.” 

— CNBC’s Sam Meredith contributed to this report.

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