Tag: Energy
The stab in the back that isn’t
The Biden Administration is portraying Saudi support for the OPEC+ reduction in oil production quotas as as betraying the Saudi-American alliance The Kingdom’s move also appears to align Riyadh with Moscow against Kyiv.
It doesn’t add up
There is a lot wrong with this perspective:
- The Saudis have never been US allies, either de jure or de facto. The relationship inaugurated in 1945 with a meeting between President Roosevelt and Saudi King Abdul Aziz has always been transactional. The US supplied security in exchange for moderate oil prices and reliable supplies. The relationship was not based on shared values or even common security concerns.
- Circumstances have changed. The US was once a major oil importer. It is now a modest net oil exporter. American hydrocarbon companies benefit handsomely from higher oil prices. Saudi Arabia in the 1970s and 1980s had trouble spending all of its oil revenue. It now requires prices of about $100/barrel in order to balance its national budget. Maintaining an absolute monarchy ruling over a much larger population is expensive.
- Saudi Arabia no longer maintains as much excess production capacity as once it did. It is down to perhaps 2 million barrels per day above current production levels. That is small compared to its previous excess capacity of 4 million barrels per day or more. This is in part due to the privatization of part of Aramco. That required the company to behave more like a profit-seeking enterprise rather than a a state-subsidized one.
- Oil around $100/barrel is required for the transition away from hydrocarbons. The many alternatives to oil and natural gas are far more competitive if the price of oil is high. You won’t be hearing this from the Green New Deal folks, but they know their interest in moving the US away from climate-changing carbon dioxide requires higher oil prices, not lower ones.
National interests prevail
What we are seeing is not a stab in the back, but a convergence of Saudi, Russian, and Iranian interests in higher oil prices. Riyadh, Moscow, and Tehran are all frightened that the impending slow-down in the world economy will lead to dramatic cuts in oil prices. Reducing production first serves their national interests.
The Americans are seeing all issues through Ukraine-tinted glasses. But others do not. Riyadh has made it clear it does not regard the Ukraine war as one in which it has a vital interest. This is not surprising. Even if the Kingdom did regard Ukraine as vital, why would an absolute monarchy with no regard for human rights favor Zelensky over Putin?
What is to be done?
The question is how the US should react. Proposals so far include continuing drawdown of the Strategic Petroleum Reserve (SPR), allowing lawsuits against OPEC for price-fixing and cutting arms sales to Saudi Arabia.
Continuing drawdown of the SPR makes obvious sense. Its one million barrels per day have moderated oil prices since the Russian invasion of Ukraine. The drawdown also returns substantial profits to the US Treasury (average acquisition price was about $30/barrel).
Cutting arms sales to the Kingdom doesn’t pass muster as a good idea. Riyadh will turn to others–read Russia or China or both–less fastidious about the conditions imposed. The Saudis like high tech American weapons. But they don’t really need them compete militarily with Iran, their only serious potential adversary in the region.
“NOPEC” legislation pending in Congress would allow lawsuits in the US against OPEC and OPEC+ for anti-competitive behavior. It is not clear that such lawsuits would be successful, or that they would lead to successful remedies. Nor would it likely improve relations with the Saudis. But at least this approach is consistent with US policy on monopolies and does not empower US adversaries.
Another approach, one politically less palatable, is to wait and see. If OPEC+ manages to maintain high oil prices, that will presumably incentivize alternatives worldwide. It won’t help the Democrats in the November election, but at least it is something the Biden Administration supports. If the world economy slows dramatically and prices either remain at current levels or fall, Biden will also have the last laugh.
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Stevenson’s army, October 11
– NYT says Biden is angry at Saudi Arabia.
– WSJ says Saudis “defied US warnings” about oil production cuts.
– RAND analyst says Putin’s successor likely to continue Ukraine war.
– Carl Bildt has suggestions for countering nuclear threat.
– Eliot Cohen assesses the next phase of the war.
– NYT warns of wider war between Tigray and Ethiopia.
– Lawfare analyzes little known authorization for counter-terror funding.
– WaPo has parade of horribles if Trump is reelected.
My SAIS colleague Charlie Stevenson distributes this almost daily news digest of foreign/defense/national security policy to “Stevenson’s army” via Googlegroups. I republish here, with occasional videos of my choice. To get Stevenson’s army by email, send a blank email (no subject or text in the body) to stevensons-army+subscribe@googlegroups.com. You’ll get an email confirming your join request. Click “Join This Group” and follow the instructions to join. Once you have joined, you can adjust your email delivery preferences (if you want every email or a digest of the emails).
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Stevenson’s army, October 6
– The lame duck session of Congress will be packed with issues.
– WSJ says US will reduce sanctions on Venezuela to let it export oil.
– NYT says US wants to make Taiwan a porcupine.
– POGO has a big critique of F35.
– FP China newsletter reviews a bunch of books.
My SAIS colleague Charlie Stevenson distributes this almost daily news digest of foreign/defense/national security policy to “Stevenson’s army” via Googlegroups. I republish here. To get Stevenson’s army by email, send a blank email (no subject or text in the body) to stevensons-army+subscribe@googlegroups.com. You’ll get an email confirming your join request. Click “Join This Group” and follow the instructions to join. Once you have joined, you can adjust your email delivery preferences (if you want every email or a digest of the emails).
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Empty annexations won’t make an empire
I’ve been out of commission for ten days or so. Peacefare was also down for a few days. But both of us are back now and trying to catch up.
The big news is clear: Russia is losing the war in Ukraine. Kyiv has forced Moscow’s retreat both in the northeast and to a lesser extent in the south. Russia’s hold on remaining occupied territory is precarious, though stronger in the south than in the the northeast. The Wagner group, a supposedly private security force reporting directly to the Kremlin, has proven much more reliable there than the regular Russian army and even than the Donbas proxies elsewhere.
Doubling down
Putin’s reaction is to double down. He has ordered a partial mobilization that has driven tens of thousands of Russians out of their country. He has also signed a piece of paper claiming to annex four Ukrainian provinces, though Russian forces control only a portion of them. The annexation is nominally a response to fake referenda conducted among the way fewer than 50% of the population of those provinces actually under Russian control. Russian troops carried the ballot boxes door to door and asked people to vote at gunpoint. Moscow claims to have annexed largely empty territory it is incapable of repopulating.
Ukraine has doubled down as well. Its army continues to perform far beyond expectations. Newly armed and amply inspired, it is taking territory at a fast pace. Kyiv has also submitted an application for NATO membership. That is unlikely to be approved before Russia is driven completely from Ukrainian territory, including Crimea. Even then there will be opposition inside the Alliance. But it signals the realignment that Putin has incentivized. It would be hard to convince any Ukrainian loyal to Ukraine that NATO membership is not in Ukraine’s interest. Even if Ukraine never accedes, it will be aligned with NATO in the future.
Shrinking war aims
Despite doubling down, Moscow has shrunk its war aims. Putin has abandoned for now his original objective, the conquest of Kyiv and the absorption of all of Ukraine into an extended Russian empire. He won’t be able to absorb all of Luhansk, Donetsk, Zaporizhzhia, and Kherson either:
The parts of Luhansk and Donetsk that were under Moscow’s control from 2014 until this year did not fare well under Russian rule. Any territory that remains under Russian control when a ceasefire some day takes effect will be depopulated and depressed. Even if Putin wins, those whom he governs will lose.
More modest but sustainable ambition is needed
Putin conceives of himself as engaged in a global struggle against a perverse, exploitative, and violent West. He is losing that struggle not only on the battlefield in Ukraine but also throughout Europe and in the democratic Far East. Even India and China are distancing themselves. His confidence in the 1000-year Russian state is grossly overwrought. Russia is a second-rate petro power with nuclear weapons he knows it can’t use without precipitating a catastrophic response. It is time for Russians to wake up and do what they know needs doing: get rid of him and his coterie and return Russia to a more modest but sustainable ambition.
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Stevenson’s army, September 3
– In addition to the regular pending bills, Congress faces September fight over new $47 Billion request for emergency spending.
– NYT says Biden democracy speech is linked to analysis that “MAGA Republicans” can be isolated from other GOP voters.
– Congress notified of new arms for Taiwan.
-WSJ says Chinook fires came from using mis-catalogued O-rings.
–Russia keeps NordStream closed.
-In Atlantic, two former officers blame generals for Afghan failings.
My SAIS colleague Charlie Stevenson distributes this almost daily news digest of foreign/defense/national security policy to “Stevenson’s army” via Googlegroups. I republish here. To get Stevenson’s army by email, send a blank email (no subject or text in the body) to stevensons-army+subscribe@googlegroups.com. You’ll get an email confirming your join request. Click “Join This Group” and follow the instructions to join. Once you have joined, you can adjust your email delivery preferences (if you want every email or a digest of the emails).
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Stevenson’s army, September 2
– Defense contractor lobbyists want boost for inflation.
– Appropriators plan stopgap until December.
– Axios says India has gone from buying 1% of Russian oil to 13%.
– State criticizes Iran’s response on nuclear deal.
– 50 in House also hit Iran deal.
My SAIS colleague Charlie Stevenson distributes this almost daily news digest of foreign/defense/national security policy to “Stevenson’s army” via Googlegroups. I republish here. To get Stevenson’s army by email, send a blank email (no subject or text in the body) to stevensons-army+subscribe@googlegroups.com. You’ll get an email confirming your join request. Click “Join This Group” and follow the instructions to join. Once you have joined, you can adjust your email delivery preferences (if you want every email or a digest of the emails).
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