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IF THERE’S AN ACHILLES HEEL in the Biden Administration, it has been energy policy — and that was glaringly apparent this week as Saudi Arabia and other producers rebuked the U.S. by cutting oil output. This will have consequences.
OFFICIALS IN WASHINGTON REACTED FURIOUSLY at news that OPEC+ will slash output by two million barrels a day; many called for retribution. But that won’t change a basic fact — when the U.S. pleaded for more oil production, the Saudis refused, siding with Iran and Russia; the latter can more easily fund its war with higher oil revenues.
THE IMMEDIATE IMPACT IS ON THE FALL ELECTIONS: Gasoline prices are now rising, especially in the Western U.S., where there are several close House and Senate races. Prices rose by an average of 62 cents per gallon in California in the past week, to $6.38 per gallon.
THE DEMOCRATS HAD MOMENTUM in late summer as gasoline prices fell, but as we have written lately, there’s been a momentum swing toward Republicans. If gasoline prices drift higher later this month, that could seal a GOP takeover of the House and would improve Republican prospects in the Senate.
THE LONG-RANGE IMPACT of the OPEC+ decision will be on U.S-Saudi relations, now headed for a deep freeze, as some members of Congress seek retribution. The U.S. is disappointed by this “short-sighted” move, the White House said; top officials had pleaded with the Saudis, starting with Biden’s controversial “fist bump” meeting with crown prince Mohammed bin Salman in July.
SENIOR BIDEN AIDES then lobbied the Saudis for weeks, culminating with private pleas in the past couple of weeks to the Saudis, Kuwait and the United Arab Emirates to oppose the production cuts.
SOME ANGRY MEMBERS OF CONGRESS are suggesting U.S. policymakers could consider repealing a long-standing exemption to federal antitrust law that allows OPEC to coordinate on prices. That would generate fierce opposition from the cartel.
ANOTHER OPTION: Rep. Tom Malinowski (D-N.J.) on Wednesday said he would introduce legislation in response to the cut that would require the Biden administration to remove all 3,000 U.S. troops and missile defense systems from Saudi Arabia and the United Arab Emirates.
ANGRY CONGRESS: Sen. Chris Murphy (D-Conn.) told CNBC in an interview the cut in production should lead to a “wholesale reevaluation of the U.S. alliance with Saudi Arabia.” Murphy said “when the chips were down, the Saudis effectively chose the Russians instead of the United States.”
OTHER MEMBERS OF CONGRESS called for a curb on U.S. oil company exports, but that is highly unlikely to pass in the Senate. In any event, the oil industry will be a convenient target between now and the Nov. 8 elections if gasoline prices rise.
THE WHITE HOUSE SAID YESTERDAY that the OPEC+ decision “is a reminder of why it’s critical that the U.S. should reduce its reliance on fossil fuels.” We disagree — this is a reminder of why there should be a greater commitment to fossil fuels, not on policies that punish the industry and needlessly drive up prices.
Related: A Momentum Shift in the November Elections
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