Expect political consequences from higher oil prices during the summer driving season

Another year, another oil price crisis. A year ago, deep in the first months of the COVID-19 pandemic, Saudi Arabia and Russia became embroiled in a battle of who should cut more oil production. With demand dropping but supply still high, prices had plummeted. At one point, some were actually negative — you literally couldn’t give oil away, a consequence of full storage tanks.

Now, recovering from COVID-19, the world economy is reviving but the OPEC+ grouping of OPEC, meaning Saudi Arabia et. al., trying to act in concert with exporters such as Russia and Kazakhstan, can’t agree on how much to open the tap. The result is that prices are strengthening — although on Wednesday they dropped slightly into the low $70s per barrel range. The result is higher prices at the pump.

When that happens in the middle of the summer driving season, there can be domestic political consequences. At the very least, ordinary people (a.k.a. voters) ask what is going on. Why are countries such as Russia and Iran benefiting from this situation? And why are our allies, Saudi Arabia and the United Arab Emirates (UAE), having a public squabble about obscure details of production levels, production capabilities and quotas?

On Tuesday, White House spokesperson Jen Psaki said U.S. officials are “encouraged” by talks, a questionable description considering that those talks had either “collapsed” or “ended” on Monday, depending with whom reporters spoke. She also said that there had been high-level conversations with officials in Saudi Arabia and the UAE, although Saudi Oil Minister Prince Abdulaziz bin Salman, normally noted for his accessibility, told Bloomberg he hadn’t personally spoken directly to anyone at the White House.

President Biden apparently isn’t personally involved, although last year it may be worth remembering that it took the personal intervention of former President Trump to bring some order to the market by verbally knocking some sense into Saudi Arabia’s de facto ruler, Crown Prince Mohammed bin Salman (who is Prince Abdulaziz’s younger half-brother).

Instead, Psaki said: “The president wants to have Americans have access to affordable and reliable energy, including at the pump. And so that’s why our team is constantly monitoring gas prices and directly communicating with OPEC parties to get to a deal and allow proposed production increases to move forward.”

The White House policy formulation is worth parsing. Note the absence of the word “oil,” and the valid implication that there are other sources of energy. Also, the apparent simplicity of what OPEC needs to do, when the technical details are actually about on what basis production increases are calculated.

With the recent high temperatures, which roasted the western states and Canada, it’s no surprise that the administration is also nodding to those concerned about climate and the environment. This brings the circle back to the heart of the issue within OPEC. The UAE, which is estimated to have perhaps 10 percent of the world’s oil reserves, wants to deplete this resource faster, before such crude loses its dominance in the energy mix, as well as its value.

We are probably talking 20 years ahead, but it may be less if alternative and cleaner forms of energy can become a significant part of the supply mix. And technical breakthrough or not, politics may change preferences. Small wonder that many of us may hope that, if we close our eyes for a while, today’s problem may disappear. Unfortunately, it almost certainly won’t.

Simon Henderson is the Baker Fellow and director of the Bernstein Program on Gulf and Energy Policy at the Washington Institute for Near East Policy. Follow him on Twitter @shendersongulf.