Joe Biden will travel to Saudi Arabia for the first time as US president on Friday. There, he hopes to persuade Riyadh to increase oil production in order to lower oil prices, which are driving inflation to its highest levels in decades.
In an effort to reset relations with the oil-producing nation that is the head of the OPEC oil cartel after the 2018 murder of journalist Jamal Khashoggi, Biden had vowed before his election that Saudi Arabia should be a “pariah” state. Oil prices, however, have since reached levels last seen during the global financial crisis of 2008 as a result of Russia’s invasion of Ukraine, a major producer of crude.
This caused US inflation to reach its highest level in more than four decades, and experts believe that this may yet persuade Biden to put aside his concerns about human rights before the crucial US midterm elections in November.
According to Oanda analyst Craig Erlam, “it highlights his desperation ahead of the mid-terms to at least be seen to be trying to alleviate the tightness in the market and bring prices back down.” In desperate times, do desperate things. The impending expiration of a key agreement among the larger so-called OPEC+ group to increase oil production may help Biden’s chances.
OPEC+ is made up of the Organization of the Petroleum Exporting Countries (OPEC), a 13-nation group headed by Saudi Arabia, and its 10 partners, which are led by Russia. The company had previously cut production in 2020 when demand had been decimated by global Covid pandemic lockdowns.
But as economies have recovered since last year, nations have been gradually turning the taps back on. Last month, OPEC+ ignored requests for larger increases to lower high prices and stuck to a previously agreed output increase. Once OPEC+ resumes pre-pandemic production after August, the deal will soon expire.
The OPEC+ deal expiring in September does present an opportunity, and perhaps (Biden) wouldn’t be taking this action if he hadn’t been given assurances that something is feasible, according to Erlam. The group’s following production meeting will take place in August.
However, despite recent losses, high crude prices have boosted state revenues and economies throughout the Middle East, dashing Biden’s hopes for more oil.
If Saudi Arabia increased its oil production, it would come as a huge shock, according to independent analyst Stephen Innes. The oil-dependent economy of Saudi Arabia grew by 9.6 percent in the first quarter, the fastest rate of growth in ten years.
According to XTB analyst Walid Koudmani, there is a “significant economic incentive to not increase production.” Already operating at close to capacity, Riyadh. Prince Faisal bin Farhan, the foreign minister of Saudi Arabia, said in May that his country had “done what it could” to help the oil market.
He argued that the industry needed to increase refining capacity rather than just pump cruder. Washington, meanwhile, wants to revive the Iran nuclear agreement that Biden’s predecessor Donald Trump pulled out of in 2018. This might result in the US lifting its economic sanctions against Iran, opening the door for the OPEC member to resume exporting at full capacity.
In an effort to resurrect the nuclear agreement, the US and Iran’s top negotiators met informally in June in Qatar.
According to analyst Koudmani, a nuclear agreement “seemed to be within reach several times in the recent past, particularly after the beginning of the Russia-Ukraine conflict.” If the US were to receive assurances (of increased oil output) from Saudi Arabia following President Biden’s visit, “it has failed to gain any traction and would probably be passed up by the US,” the expert said.
