With the Organization of Petroleum Exporting Countries (OPEC)+, a wider grouping that also includes Russia, deciding to cut oil production by two million barrels a day from November, Washington DC is upset. The decision has jeopardised both American geopolitical objectives and, from the perspective of Democrats, undermined the party’s domestic political aims.
Here is what has happened so far.
The United States (US), along with other G7 countries and the European Union, has been working on a plan to impose
With the Organization of Petroleum Exporting Countries (OPEC)+, a wider grouping that also includes Russia, deciding to cut oil production by two million barrels a day from November, Washington DC is upset. The decision has jeopardised both American geopolitical objectives and, from the perspective of Democrats, undermined the party’s domestic political aims.
Here is what has happened so far.
The United States (US), along with other G7 countries and the European Union, has been working on a plan to impose a price cap on the purchase of Russian oil. The objective is two-fold — ensure that Russian energy flows into the markets to prevent a crisis, but ensure that buyers purchase this energy at the lowest prices possible to prevent an inflow of revenue into what the West sees as Russian president Vladimir Putin’s war coffers.
The method designed is based on traders, brokers, insurance firms, shipping companies, and other maritime services accessing information about the price, sharing this information at each level of the transaction, and transporting Russian energy that is sold below the price cap.
But to ensure that Russian leverage dips in energy markets and the price cap works — it is a fairly difficult scheme to execute even in normal circumstances — what the West needed was adequate energy supplies to meet demand. The global South has made it clear that the energy crisis ranks among their top priorities, while there is dread in Europe itself about the winter ahead.
To manage supplies, the US deployed a charm offensive on West Asian countries, particularly Saudi Arabia and the United Arab Emirates (UAE), to persuade them to increase production, or, at the very least, not reduce it. President Joe Biden swallowed his pride and visited Saudi Arabia to meet Crown Prince and now prime minister Mohammed bin Salman (MBS), who has faced fierce criticism for his alleged involvement in the killing of Jamal Khashoggi, a Washington Post columnist. Biden overrode the Left-wing of his party, ignored media criticism, and the appeal of human rights outfits — the power of oil surpassed them all. But MBS wasn’t impressed.
Biden also met UAE President Mohamed bin Zayed or MBZ. A statement after the meeting said that Biden “welcomed the UAE’s long-time commitment to global energy security as a reliable and responsible supplier”.
The Americans were, therefore, clearly banking on a few mechanisms to achieve their strategic objective of squeezing Russian revenues. Get OPEC to increase or at least maintain its regular supply; get energy buyers, including India, to reduce the price at which they buy Russian energy; and meet both the requirements of wider global energy security and squeeze Putin.
But the American plan is faltering at three levels.
One, for the price cap to work, supply levels from elsewhere have to be stable and meet energy requirements. Washington DC’s geopolitical moves have removed Iran and Venezuela from the market; it doesn’t want countries to engage in normal trade with Russia; and its leverage with its traditional security allies in West Asia hasn’t been effective in persuading them to keep up production levels. The Americans are almost self-sufficient; the rest of the world can’t afford to fall in line when supply is inconsistent.
Two, OPEC+’s decision will impact prices and contribute to the inflationary climate globally. Democrats believe that MBS and MBZ have deliberately timed their decision to influence the midterm elections in the US, where inflation is already the most pressing issue. It is an open secret that the Saudi and UAE regimes are more comfortable with the Republicans. With the White House and Congressional Democrats seeing the move as an attempt to influence their political prospects, there is fury building up. Biden has ended up losing the moral high ground, while winning little strategic benefit from his wooing of the Saudis. The administration is now toying with measures to break the power of the oil cartel, but the instruments at its disposal are limited and will have other consequences, including pushing West Asian states towards Russia and China.
The third problem for the Americans is that neither Russia nor China will get on board with the price cap. For Russia, the calculation that it has no choice but to sell underestimates Putin’s irrational streak seen through the course of this war, and China remains the big buyer of Russian petroleum products. Add to it the sheer logistical challenge of operationalising and enforcing the price cap in terms of getting all maritime services to fall in line. It may just encourage a parallel energy economic system.
Given this set of circumstances, instead of telling India to sign on to a wildly ambitious, entirely unprecedented and potentially unworkable scheme, the Americans should go back to the drawing board. The military balance of power on the ground is shifting in Ukraine’s favour, Russia is increasingly resorting to desperate measures, and there is global concern over Moscow’s actions and rhetoric. But for the global South, as India has forcefully reminded the world, the consequences of the military conflict are critical.
Taking a big picture view and helping the world with energy security and affordability will achieve the US more goodwill than pursuing the single-minded objective of targeting Putin’s revenue streams.
The views expressed are personal
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