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In 2020, Democrats blocked Trump’s proposal to buy American oil at $24 a barrel. Yesterday, a Biden official disclosed a secret offer to buy OPEC+ oil at $80 a barrel.
By Michael Shellenberger
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The hand of Russia’s President Vladimir Putin (right) is now strengthened within the OPEC+ cartel controlled by Saudi Arabia’s Crown Prince Mohammed bin Salman (left), which today decided to cut production by 2 million barrels.
In early September, United States Secretary of Energy, Jennifer Granholm, told Reuters that President Joe Biden was considering extending the release of oil from America’s emergency stockpiles, the Strategic Petroleum Reserve (SPR), through October, and thus beyond the date when the program had been set to end. But then, a few hours later, an official with the Department of Energy called Reuters and contradicted Granholm, saying that the White House was not, in fact, considering more SPR releases. Five days later, the White House said it was considering refilling the SPR, thereby proposing to do the exact opposite of what Granholm had proposed.
The confusion around the Biden administration’s petroleum policy was cleared up yesterday after a senior official revealed that the White House had made a secret offer to buy up to 200 million barrels of OPEC+ oil to replenish the SPR in exchange for OPEC+ not cutting oil production. The official said the White House wanted to reassure OPEC+ that the US “won’t leave them hanging dry.” The fact that this offer was made through the White House, not the Department of Energy, may explain why a representative of the Department called Reuters to take back the remarks of Granholm, who has shown herself to be out-of-the-loop, and at a loss for words, relating to key administration decisions relating to oil and gas production.
The revelation poses political risks for Democrats who, in the spring of 2020, killed a proposal by President Donald Trump to replenish the SPR with oil from American producers, not OPEC+ ones, and at a price of $24 a barrel, not the $80 a barrel that the Biden White House promised to OPEC+. At the time, Trump was seeking to stabilize the American oil industry after the Covid-19 pandemic massively reduced oil demand. Trump and Congressional Republicans proposed spending $3 billion to fill the SPR. Senate Democratic Leader Chuck Schumer successfully defeated the proposal, and later bragged that his party had blocked a “bailout for big oil.”
Even normally strong boosters of the Biden White House viewed the Democrats’ opposition to refilling the SPR as a major blunder. “That decision,” noted Bloomberg, “effectively cost the US billions in potential profits and meant Biden had tens of millions of fewer barrels at his disposal with which to counter price surges.” Moreover, observed Bloomberg, it will take significantly more oil today to fill the SPR than it would have two years ago. In spring 2020, the SPR contained 634 million barrels out of a capacity of 727 million. Now, the reserve is below 442 million barrels, its lowest level in 38 years.
The decision looks even worse in light of the decision by OPEC+ today to cut production, which will increase oil prices. The Biden administration in recent days has been pulling out the stops trying to persuade Saudi Arabia and other OPEC+ members, a group that includes Russia, to maintain today’s levels of oil production. Last Friday, the Biden administration sought a 45-day delay in a civil court proceeding over whether Saudi Arabia’s Crown Prince Mohammed bin Salman should have sovereign immunity for the murder of Washington Post columnist Jamal Khashoggi, for which bin Salman has taken responsibility.
The behavior by the Biden White House displays a willingness to sacrifice America’s commitment to human rights for the president’s short-term political needs. Instead of pleading with OPEC+ to maintain or increase high levels of oil production, the Biden administration could have simply allowed for expanded domestic oil production. Instead, Biden has issued fewer leases for on-shore and off-shore oil production than any president since World War II. As such, the pleadings by Biden and administration officials have backfired. The perception of the U.S. in the minds of OPEC+ members has weakened while the influence of Russian President Vladimir Putin has strengthened.
Why is that? Why did the Biden administration decide to spend so much political capital trying, and failing, to get Saudi Arabia and other OPEC+ members to expand production when it could have simply expanded oil production domestically? What, exactly, is going on?
The War on American Energy
President Joe Biden greets the Saudi Crown Prince on July 15, 2022.
Over the last several weeks, the Biden administration had been frantically trying to persuade Saudi Arabia and other OPEC+ members not to cut oil production. The reason was that the White House feared a cut to oil production would increase gasoline prices, and hurt Democrats in the November elections. We know this because the White House’s talking points for its senior officials to use while lobbying their counterparts in Saudia Arabia, UAE, Kuwait, and other nations, were leaked to the media.
The talking points described a potential OPEC+ production cut as a “total disaster” and said the Biden administration would view it as a “hostile act.” One official involved in the process told CNN that the White House is “having a spasm and panicking.” Another called White House efforts “desperate.”
Senior White House officials flew to Saudi Arabia last month to lobby Saudi Arabia directly. Treasury Secretary Janet Yellen personally lobbied finance ministers from UAE and Kuwait. “There is great political risk to your reputation and relations with the United States and the west if you move forward,” read the White House talking points for Yellen.
The efforts began in July when President Joe Biden flew to Saudi Arabia and met with Crown Prince Mohammed bin Salman to urge Saudi Arabia to increase oil production. A few weeks later, OPEC+ announced a token 100,000 barrel increase in production, which is just 0.5% of the 2 million barrel production cut announced today.
White House talking points for the Treasury emphasized the until-now secret offer to buy 200 million barrels of OPEC+ oil to refill its Strategic Petroleum Reserve (SPR) in exchange for OPEC+ not reducing production. Apparently that incentive wasn’t good enough for the Saudis or other OPEC+ members, who went ahead with the cut anyway.
What’s been driving the Biden administration? Why has it issued fewer leases for oil-and-gas drilling offshore and on federal land than any other administration since World War II? The ostensible reason for Biden’s repression of oil and gas development domestically is climate change, but the explanation makes little sense, given that it is seeking more production by OPEC+, whose oil produces more greenhouse gas emissions since it must be shipped to the U.S.
The underlying motivations for the Biden administration are political. First, Biden doesn’t want to anger his environmentalist base of voters and donors, who oppose expanded domestic oil production, but accept that increasing OPEC+ production in the short-term may be a political necessity. Second, Biden and Democrats are pursuing a long-term strategy to shut down the U.S. oil and gas industry, which they view as friendlier to Republicans, in terms of campaign financing, than to Democrats.
That strategy has led the White House to engage in the tricky if not impossible task of trying to control the price of oil, not just in the US but also globally. In addition to its pleadings and offers to OPEC+, the Europe Union has just approved a price cap on Russian oil, which had been pushed by the Biden administration, but which most experts believe won’t work since Russia could sell its oil to China, India, and other developing nations, who have already said they won’t cooperate with the price cap.
Biden’s efforts backfired. Biden looks amoral, having gone from calling Saudia Arabia a “pariah” to urging a court to give the Saudi Crown Prince sovereign immunity, for strictly political, not environmental, reasons. And he looks weak, unable to influence OPEC+ in the way past American presidents could, with Putin looking strengthened at a moment when he needs it most, given setbacks in Russia’s invasion of Ukraine. Compounding these perceptions is the fact that Democrats killed what now looks like a golden opportunity to refill the SPR at $24 a barrel.
It’s not clear if the Biden administration will change anything in response to the decision by OPEC+. A few hours ago, National Security Spokesperson John Kirby said the United States needs to be less dependent on OPEC+ and other foreign producers of U.S. oil. But that will require expanding domestic oil production, not just releasing more oil from the SPR.
Now, Congressional Democrats are criticizing the Biden administration’s obeisance to Saudi Arabia. Rep. Ro Khanna (D-CA_ demanded the White House retaliate against Saudi Arabia. “This is beyond the pale,” he said, after the OPEC+ cut was announced. “The Saudis need to be dealt with harshly…. I don’t know why we kowtow to them…. we need to be tough with them. The president needs to make it clear we will cut off their supply [of weapons]…Our policymakers are stuck in the 1970s.”
Senator Chris Murphy (D-NJ) agreed. “I think it’s time for a wholesale re-revaluation of the U.S. alliance with Saudi Arabia,” he said. “I just don’t know what the point of the current alliance is, if we have to work so hard to get the Saudis to do the right thing.”
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