A week or so ago, I noted that President Biden’s efforts to encourage OPEC and its allies to increase production did not seem to be going very well.
Now we have this (via the New York Times):
As Russia massed troops on its border with Ukraine and invaded the country at the start of the year, Saudi Arabia’s Kingdom Holding Company quietly invested more than $600 million in Russia’s three dominant energy companies.
Then, over the summer, as the United States, Canada and several European countries cut oil imports from Russia, Saudi Arabia doubled the amount of fuel oil it was buying from Russia for its power plants, freeing up its own crude for export.
And, this month, Russia and Saudi Arabia steered the Organization of the Petroleum Exporting Countries and its allied producers to reduce output targets in an effort to prop up global oil prices, which were falling, a decision that should increase the oil profits of both nations.
Taken together, the moves represent a distinct Saudi tilt toward Moscow and away from the United States.
Of course, the administration’s efforts to cut a deal with the terrorist regime our reliable negotiating partners in Tehran, who don’t get on so well with the Sunni theocrats in Riyadh, won’t have helped, not least because the Saudis are not too appreciative of what freer availability of Iranian oil might do to the oil price.
The NYT:
By working more closely with Russia, the Saudis are effectively making it more difficult for the United States and the European Union to isolate Mr. Putin. As Europe gets ready to greatly reduce how much oil it imports from Russia, Saudi Arabia and countries like China and India are stepping in as buyers of last resort. . . .
By announcing a small trim of production this month, OPEC Plus demonstrated its independence from President Biden, who visited Saudi Arabia in July and exchanged a fist bump with Prince Mohammed. The visit was widely interpreted as an effort by Mr. Biden to restore U.S.-Saudi relations after he criticized the kingdom during the 2020 U.S. presidential election for the killing of Jamal Khashoggi, the Washington Post columnist.
Fist bump, meet punch in the face.
This was an extra twist, however:
Some Middle East energy executives said the United States and other Western countries had not been reliable partners to oil exporters, in large part because they sought to wean the world off fossil fuels in an effort to address climate change.
“Years of schizophrenic energy policy in Europe and the U.S. have resulted in significant energy security vulnerabilities that large producers are adapting to,” said Badr H. Jafar, the president of Crescent Petroleum, an oil company in the United Arab Emirates. “And the energy chessboard is likely to keep shifting in the months and years to come.”
Translation: The West is an unreliable long-term customer (at least if the transition away from CO2 goes according to plan, which it won’t, but that’s another story). However, it is also a customer that, thanks to climate policy, is now deliberately weakening its own ability to push back against higher oil prices. Given where things currently stand technologically, renewables are not going to deliver energy independence on their own and, even if the West accelerates, as it should, down the nuclear route (I wonder what a Russian-engineered catastrophe at Ukraine’s Zaporizhzhia plant would do to those plans), that will take years.
Put all these things together and they give OPEC and its allies every incentive to push the price up as far as they can, and as soon as they can, and for as long as they can without flattening demand. They will be given more confidence in their ability to do so by the West’s unwillingness to boost its own oil production over a long enough period to deliver energy security until that happy moment when the switch away from greenhouse-gas emitting energy sources can be achieved without economic or geopolitical disaster.
Meanwhile, the Wall Street Journal reports on a move by the administration that signals that it is determined to stick to a course that will only help the Saudis, the Russians, and other well-wishers:
Joe Manchin’s deal with Democratic Senate leader Chuck Schumer isn’t looking so good for the West Virginian, and the latest evidence is a Biden Administration settlement with green groups that stops previously approved oil and gas leases.
The Interior Department last week agreed to conduct additional climate reviews for five federal oil and gas lease sales held in 2019 and 2020 that were challenged by environmental groups. Activists claimed the Trump Administration didn’t sufficiently study the climate impact of the leases under the National Environmental Policy Act (NEPA).
Rather than defend the earlier environmental reviews, the Biden Administration surrendered to their progressive friends. According to last week’s legal settlement, the climate reviews will incorporate the “social cost” of greenhouse gas emissions that could result from the leases.
The social cost of empowering Putin and his pals is, apparently, zero. The difference all this could make to the climate: not much more than zero. The actual cost to Americans at the gas pump: considerably more than zero. Greenflation is what it is.