The US is trying to negotiate with Saudi Arabia to increase oil production. According to the Axios portal, two senior advisers to the president are on a secret visit to the kingdom for this. Joe Biden.
According to the publication, Biden needs to achieve an increase in oil production in order to try to reduce gas prices in the run-up to the midterm elections, as well as increase pressure on Russia.
“The US also wants Saudi Arabia to increase production so it can push for a wide range of sanctions on Russian oil amid the ongoing conflict in Ukraine,” the Axios article says.
Until recently, the Saudis have balked at Washington’s proposals and stuck to their deal with Russia on oil production levels, but, the article notes, that agreement expires in September, which could open the door to a deal with the US on future production levels.
The White House refused to confirm information about the talks to Axios.
Leading expert of the National Energy Security Fund, lecturer at the Financial University under the Government of the Russian Federation Stanislav Mitrahovich recalled that the Americans, together with the UK, have been persuading Saudi Arabia for many months in a row to increase oil production outside the quotas set under OPEC+.
– A cumulative increase of 432 thousand barrels per day for the entire alliance has been agreed. This is very small, considering that the alliance has not chosen them yet. In reality, production is also falling in Russia (according to the results of April, by 10% compared to February, in May, according to Alexander Novakgrowth has begun, but there are no statistics yet), and in many other countries. Saudi Arabia, the United Arab Emirates have free capacities, maybe Iraq and Kuwait a little, all the rest do not have free capacities.
The Americans tell Saudi Arabia that “you have free capacities, launch them and take the place of Russia, at least in the European market, and preferably everywhere.” However, firstly, what is the real capacity of this free capacity is a big speculative question, as countries like to say that they are doing well, but in reality they are not. I’m not sure that Saudi Arabia and the UAE will fully replace by opening the tap at full capacity, even if they try hard, but you can partially try.
Not only did the advisers go to Saudi Arabia, but, for example, the Prime Minister of Great Britain Boris Johnsonan American ally in this matter, Biden is trying to get through to the crown prince Salmanbut he does not pick up the phone (they have a personal conflict). In addition, the Arabs are dissatisfied with the Americans’ attempt to make a deal with Iran. Plus, the story of the freezing of other people’s assets by the Americans right and left, which also influenced the point of view in the Arab world. They understand that today they froze Russian assets, which are competitors of Saudi Arabia, and tomorrow they will freeze Saudi Arabia itself.
Moreover, the Americans, in parallel with an attempt to negotiate in a good way, are trying to negotiate in a bad way. They are trying to pass the NOPEC (No Oil Producing and Exporting Cartels Act) legislation that will allow the US to freeze the assets of countries that will be considered members of the cartel. The Americans are counting on Saudi Arabia to bend and do what Washington says. In fact, as a result of the negotiations, it can be so transferred that Saudi Arabia will begin to work out more and more options for trading outside the dollar, in yuan, withdrawing assets and the like.
There will be an attempt to put pressure, the future is not determined, time will tell whether the Arabs will bend or not. Still, it seems to me that now is not the time when you can wag your finger from Washington and do everything as they say. Now the situation is different, the major consumers are different, like China. Saudi Arabia is aware that it has room to maneuver.
“SP”: – If the Americans persuade the SA to increase production, will this be a violation of the OPEC deal?
– If they are persuaded to increase beyond what has been agreed, then OPEC + will be broken, but it is worth paying attention to the statement of the same Salman that they are ready to make a new OPEC + deal with the participation of Russia again. So far, they are not throwing Russia away, but, of course, no one can give guarantees. Today the situation is this, tomorrow it will be different. People are trying to manipulate, intimidate. But if earlier all intimidation worked with a bang, now the world has changed, there is no moment of unipolarity, and the countries of the second and third echelon are aware of this, which are not trying to line up for America, as before, but are looking for an alternative. The alternative is China and, of course, they maintain relations with Russia.
“SP”: – According to Deputy Prime Minister Alexander Novak, oil production in Russia this year, according to forecasts, will fall by 5-8%. If, nevertheless, the Saudis increase production, what are the prospects for Russian oil?
— They depend on the embargo, its rigidity, our flexibility and readiness to give discounts to Asian regions, and on a combination of problems. Future will tell. The Ministry of Economic Development recognized the maximum drop to 17%, but for a country that has been subjected to the most severe pressure, this is not so much.
Deputy Director General of the Institute of National Energy Alexander Frolov notes that the Saudis are close to peak production.
– Theoretically, they could increase oil production, but at the same time, Saudi Arabia is not an independent player, but part of the OPEC + team. If it now goes along with the US, increasing oil production in some way, then it will actually destroy the existing agreement. The main question here is what is more important for her – to be able to influence world markets or remain close friends of the United States. The answer is not obvious, because the United States, of course, is a major supplier of weapons, military bases, and so on, but, on the other hand, China is closer.
Now the United States, along with its allies, is partly in the hands of Saudi Arabia. And if they increase oil production, then, in fact, they will sign that they are an extremely dependent player, that it is impossible to negotiate with them. That is, it will be clear for OPEC+ participants that there is no point in negotiating, since the Americans will come and say “everything”, and all agreements will come to an end.
At the same time, it is not clear what Saudi Arabia will receive as a result. What is its benefit if it increases oil production? Will the price of oil drop? What is the benefit of Saudi Arabia? Will the US and Europe be able to dictate their terms to the Russian Federation? (At least they might get that impression.) And what is the benefit of Saudi Arabia? What is the benefit of getting someone chestnuts out of the fire?
It is difficult to talk about the outcome of such negotiations, because based on the conditions described above, then Saudi Arabia has no reason to please the United States in any way, even if Saudi Arabia has the technical capabilities to do so. They themselves say that they have exhausted their growth potential and cannot increase oil production. If this is cunning and they can, then we rest on control by the United States, on the ability to put pressure on the Saudis so that they cave in.
“SP”: – They want to put pressure on them for the sake of a share of the Russian market. Really?
– If someone starts telling that if the Saudis start producing more oil, they will get the opportunity to eat off the market share from the Russian Federation – this is all, of course, great. Does Saudi Arabia have the task of eating off market share or getting money? When the choice is between market share with lower prices or money, Saudi Arabia, as an oil producer, will be more in favor of getting more money.
The situation is twofold: if the United States has very tough instruments of pressure on the Saudis, then they can step on the throat of their own song and start increasing production. In all other conditions they will not do so.
Secondly, there is another point. The United States is currently negotiating with Saudi Arabia, clearly not in order for them to compensate for the potentially falling volumes of the Russian Federation on the market. They lead them to secure their own market. They proudly and unequivocally refused to purchase Russian oil and oil products, and then looked at the prices on the world market, on their own market – something is happening. Who did it? Last but not least, they did. The market is tense, everyone is in a panic, prices are high, despite the fact that, as the Saudis say, there is no shortage of oil, no matter how the Europeans and Americans talk about the shortage in the market. From the point of view of producers, everything is in order, there are stocks, there are necessary production volumes.
It is impossible to accurately judge only by the statements of the representatives of Saudi Arabia. Perhaps they are inflating their worth, but what they are being pushed to will bring them so many disadvantages that it is not clear what they can be given in return.
There is one more argument that outweighs the scales against the US. This is China, which increases oil consumption by 0.4-0.5 million barrels per day per year. China is the largest growth market on the planet. Against the backdrop of Europe, which screams that it will get rid of hydrocarbons, reduce oil consumption, or the United States, which screams that only electric cars, renewable energy sources, Saudi Arabia is wondering who to be friends with? With a country that says “bring us everything, we are a growing market, we are processing and consuming more and more, long-term contracts – cheers, we want to be friends” or with whom, if you look at the prospects of ten years?
I’m not saying that the US will give up oil and gas or Europe will cope with its problems without oil and gas. But their problem is that their positioning is directly opposite to the strategic tasks facing the producers of hydrocarbon raw materials.