Saudis Maintain Upper Hand In Oil Markets As Biden Wraps Up Visit

“Human rights should be at the core of our engagement with the world — not the periphery. As president, Joe Biden will hold accountable Saudi Arabia, China, and every nation that violates the human rights of their citizens.” #DemDebate, 11/20/2019

President Biden made the trip to Saudi Arabia, the world’s largest exporter of crude oil, to discuss among other matters the continued high price of energy — which is a leading driver of the rampant 9.1% domestic inflation, decimating his approval ratings here in the U.S. as the midterms approach.

Joe Biden the president, who just returned from the Arabian desert, is a far cry from Joe Biden the candidate, who in November 2019 promised to treat the Saudi kingdom quite differently in response to the assassination of journalist Jamal Khashoggi which was presumably on Riyadh’s orders. “I would make it very clear we were not going to in fact sell more weapons to them,” Biden said in his debate with then-President Trump. “We were going to in fact make them pay the price, and make them in fact the pariah that they are.”

Strong words. But back in 2019, the energy landscape was quite different. In December 2018, the U.S. had for the first time since the mid-1950s become a net exporter of energy. It was a position the country maintained throughout 2019 and 2020.

But today the situation has changed dramatically. Once again, the U.S. finds itself dependent on foreign imports to fill the supply gap between demand and domestic production. And, so, we now have what Saudi Prince Turki Al-Faisal described as a “much diminished president” touching down in Jeddah hat-in-hand.

One could not have imagined in January 2020 a U.S. president jetting off to the volatile and duplicitous Middle East to, in effect, beg for oil while the U.S. sits atop proven reserves of 38.2 billion barrels of crude oil and lease condensate. But the collapse in domestic crude during the disastrous and ineffective COVID lockdowns, as illustrated by the nearly 75% reduction in U.S. rig counts, followed by the rapid rebound of economic activity, and thus soaring demand after the lockdowns were lifted, have left the U.S. in a precarious position. And now the president finds himself eating his condemnation of the Saudi royals while reversing several themes of his campaign, to wit: a drive for less fossil fuels in favor of green energy, and his push for holding nations accountable for human rights violations. Machiavelli is laughing.

To add insult to injury, despite Biden’s lofty rhetoric that “the world will hold Russia accountable” for its invasion of Ukraine through sanctions, the reality has turned out to be quite different – and also predictable to anyone who understands the nature of the realpolitik by which much of the non-Western world operates. Maybe the U.S. and its EU allies have declined to import Russian oil in a move to punish Moscow’s war-making on its neighbor, but other nations, most notably China, India, and, wait for it, Saudi Arabia have not. Sanctions only work if the flow of material is cut off severely, or even completely. Otherwise they just present glittering opportunities to those who opt to not go along with the program.

As such, the Saudis have seized upon Russia’s desperation to sell its oil and distillates to anyone who will take it. It’s currently a buyer’s market for Russian energy. And, as with other non-aligned nations in Asia, the Middle East, and Africa, the Saudis are gobbling up Putin’s fuel oil at steep discounts to power their own energy infrastructure.

They have, in fact, doubled imports in the second quarter. This has freed the kingdom to sell its excess oil at a premium. It is a classic, and to this energy trader enviable, arbitrage. In short, the Saudis are standing in between the Russians and the U.S./NATO as de facto intermediaries, buying low from Putin and off-loading it at a premium to his enemies. Feel foolish yet? These are your tax dollars at work.

What can Biden, who promised to marginalize the Saudis just two short years ago in one of his all-too-familiar episodes of either ill-conceived or mentally debilitated spasms of irresponsible public caprice, do about it? He may have but two options, as releasing more oil from the Strategic Petroleum Reserve is of little long-term value.

One, he can beg OPEC to pump more fossil fuels, as he appears to be doing. Two, he can step out of the way and allow for increased domestic production by returning the Bureau of Land Management’s available acreage, environmental standards, and fee structures to numbers that mirror those before the February 2022 “pause” on leasing of federal lands that was enjoined by a Louisiana court. As of now, drilling will be allowed on federal land again, but on 80% fewer acres than before. And drillers

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