Biden Has ‘Only Bad Options’ for Bringing Down Oil Prices
HOUSTON — When President Biden meets Crown Prince Mohammed bin Salman in Saudi Arabia, he will be following in the footsteps of presidents like Jimmy Carter, who flew to Tehran in 1977 to exchange toasts with the shah of Iran on New Year’s Eve.
Like the prince, the shah was an unelected monarch with a tarnished human rights record. But Mr. Carter was obliged to celebrate with him for a cause that was of great concern to people back home: cheaper gasoline and secure oil supplies.
As Mr. Carter and other presidents learned, Mr. Biden has precious few tools to bring down costs at the pump, especially when Russia, one of the world’s largest energy producers, has started an unprovoked war against a smaller neighbor. In Mr. Carter’s time, oil supplies that Western countries needed were threatened by revolutions in the Middle East.
During the 2020 campaign, Mr. Biden pledged to turn Saudi Arabia into a “pariah” for the assassination of a prominent dissident, Jamal Khashoggi. But officials said last week that he planned to visit the kingdom this summer. It was just the latest sign that oil has again regained its centrality in geopolitics.
Just a few years ago, many lawmakers in Washington and oil and gas executives in Texas were patting themselves on the back for an energy boom that had turned the United States into a net exporter of oil and petroleum products and made it more energy independent. With prices rising, that achievement now looks illusory.
The United States is the world’s biggest oil and natural gas producer, but it accounts for only about 12 percent of the global petroleum supply. The price of oil, the principal cost in gasoline, can still shoot up or tumble depending on events halfway around the world. And no president, no matter how powerful or competent, can do much to control it.
Those facts are cold comfort to Americans who are finding that a stop at the gas station can easily cost a hundred dollars, much more than just a year earlier. When fuel prices rise, consumers demand action and can turn against presidents who seem unwilling or unable to bring them back down.
Always looking ahead to the next election when their jobs or their party’s hold on power is at stake, presidents can find it impossible not to try to cajole or plead with foreign and domestic oil producers to drill and pump more oil, faster.
“A president has to try,” said Bill Richardson, an energy secretary in the Clinton administration. “Unfortunately, there are only bad options. And any alternative options are probably worse than asking the Saudis to increase production.”
Two other oil-producing countries that could increase production — Iran and Venezuela — are U.S. adversaries that Western sanctions have largely cut out of the global market. Striking any deal with their leaders without securing major concessions on issues like nuclear enrichment and democratic reforms would be politically perilous for Mr. Biden.
Energy experts said even Saudi Arabia, which is widely considered to have the most spare production capacity ready to be put to use, could not bring down prices quickly on its own. That’s because Russian output is sliding and could fall much further as European countries reduce their purchases from the country.
“Presidents may be the most powerful figure in the American government, but they cannot control the price of oil at the pump,” said Chase Untermeyer, U.S. ambassador to Qatar in the George W. Bush administration. “Even if prices do go down for reasons out of his control, President Biden probably won’t get much credit for it, either.”
Some Republican lawmakers and oil executives have argued that Mr. Biden could do more to increase domestic oil and gas production by opening up more federal lands and waters to oil drilling in places like Alaska and the Gulf of Mexico. He could also ease regulations on pipeline construction so Canadian producers could send more oil south.
But even those initiatives — which environmentalists and many Democrats oppose because they would retard efforts to combat climate change — would have little immediate impact because it takes months for new oil wells to start producing and pipelines can take years to build.
“Were the administration to accede to every aspect of the industry’s wish list, that would have a modest impact on today’s prices because it would mostly be about production in the future,” said Jason Bordoff, who is director of Columbia University’s Center for Global Energy Policy and was an adviser to President Barack Obama. “And it would come with substantial downsides politically, socially and environmentally.”
Mr. Biden and his aides have been jawboning U.S. oil executives to pump more oil with little success. Most oil companies are reluctant to expand production because they fear that drilling more now will lead to a glut that will send prices tumbling. They remember when oil prices fell below zero at the start of the pandemic. Big companies like Exxon Mobil, Chevron, BP and Shell have largely stuck to the investment budgets they set last year before Russia invaded Ukraine.
The Russia-Ukraine War and the Global Economy
A far-reaching conflict. Russia’s invasion on Ukraine has had a ripple effect across the globe, adding to the stock market’s woes. The conflict has caused dizzying spikes in gas prices and product shortages, and is pushing Europe to reconsider its reliance on Russian energy sources.
Global growth slows. The fallout from the war has hobbled efforts by major economies to recover from the pandemic, injecting new uncertainty and undermining economic confidence around the world. In the United States, gross domestic product, adjusted for inflation, fell 0.4 percent in the first quarter of 2022.
Energy prices rise. Oil and gas prices, already up as a result of the pandemic, have continued to increase since the beginning of the conflict. The sharpening of the confrontation has also forced countries in Europe and elsewhere to rethink their reliance on Russian energy and seek alternative sources.
Russia’s economy faces slowdown. Though pro-Ukraine countries continue to adopt sanctions against the Kremlin in response to its aggression, the Russian economy has avoided a crippling collapse for now thanks to capital controls and interest rate increases. But Russia’s central bank chief warned that the country is likely to face a steep economic downturn as its inventory of imported goods and parts runs low.
Trade barriers go up. The invasion of Ukraine has also unleashed a wave of protectionism as governments, desperate to secure goods for their citizens amid shortages and rising prices, erect new barriers to stop exports. But the restrictions are making the products more expensive and even harder to come by.
Food supplies come under pressure. The war has driven up the cost of food in East Africa, a region that depends greatly on exports of wheat, soybeans and barley from Russia and Ukraine and is already dealing with a severe drought. Amid dwindling supplies, supermarkets around the world have begun asking customers to limit their purchases of sunflower oil, of which Ukraine is a top exporter.
Prices of essential metals soar. The price of palladium, used in automotive exhaust systems and mobile phones, has been soaring amid fears that Russia, the world’s largest exporter of the metal, could be cut off from global markets. The price of nickel, another key Russian export, has also been rising.
Energy traders have become so convinced that the supply will remain limited that the prices of the U.S. and global oil benchmarks climbed after news broke that Mr. Biden was planning to travel to Saudi Arabia. Oil prices rose to about $120 a barrel on Friday, and the national average price for a gallon of regular gasoline was $4.85 on Sunday, according to AAA, more than 20 cents higher than a week earlier and $1.80 above a year ago.
Another Biden administration effort that has appeared to fall flat is a decision to release a million barrels of oil daily from the Strategic Petroleum Reserve. Analysts said it was hard to discern any impact from those releases.
The Biden team has also been in talks with Venezuela and Iran, but progress has been halting.
The administration recently renewed a license that partly exempts Chevron from U.S. sanctions aimed at crippling the oil industry in Venezuela. In March, three administration officials traveled to Caracas to draw President Nicolás Maduro into negotiations with the political opposition.
In another softening of sanctions, Repsol of Spain and Eni of Italy could begin shipping small amounts of oil from Venezuela to Europe in a few weeks, Reuters reported on Sunday.
Venezuela, once a major exporter to the United States, has the world’s largest petroleum reserves. But its oil industry has been so crippled that it could take months or even years for the country to substantially increase exports.
With Iran, Mr. Biden is seeking to revive a 2015 nuclear accord that President Donald J. Trump pulled out of. A deal could free Iran to export more than 500,000 barrels of oil a day, easing the global supply crunch and making up for some of the barrels that Russia is not selling. Iran also has roughly 100 million barrels in storage, which could potentially be released quickly.
But the nuclear talks appear to be mired in disagreements and are not expected to bear fruit soon.
Of course, any deals with either Venezuela or Iran could themselves become political liabilities for Mr. Biden because most Republicans and even some Democrats oppose compromises with the leaders of those countries.
“No president wants to remove the Revolutionary Guards of Iran from the terrorist list,” Ben Cahill, an energy expert at the Center for Strategic and International Studies in Washington, said about one of the sticking points in the talks with Iran. “Presidents are wary of any moves that look like they are making political sacrifices and handing a win to America’s adversaries.”
Foreign-policy experts say that while energy crises during war are inevitable, they always seem to surprise administrations, which are generally unprepared for the next crisis. Mr. Bordoff, the Obama adviser, suggested that the country invest more in electric cars and trucks and encourage more efficiency and conservation to lower energy demand.
“The history of oil crises shows that when there is a crisis, politicians run around like chickens with their heads cut off, trying to figure out what they can do to provide immediate relief to consumers,” Mr. Bordoff said. U.S. leaders, he added, need to better prepare the country for “the next time there is an inevitable oil crisis.”