A group of oil-producing nations known as OPEC+ that had warm relations with President Trump is wary of a change in posture from President-elect Joe Biden.
Trump took an unusually hands-on role intervening in the affairs of OPEC+, a group led by Saudi Arabia, other Middle Eastern countries, and Russia that has the power to swing global oil markets. But Biden is expected to take a more traditional bystander role. Some of Biden’s policy agenda, meanwhile, could upset the cartel.
“The Saudis realize we are going back to kind of a normal relationship where the U.S. president almost could care less about oil as long as the price is not going up,” said Bob McNally, president of Rapidan Energy Group and a former oil official in the George W. Bush administration. “It’s going to be like benign neglect. Biden couldn’t care less about OPEC+.”
Trump played an influential role this summer in helping mend a rift between Saudi Arabia and Russia, the two largest oil producers outside the U.S., that was exacerbating a pandemic-fueled price crash that caused pain for American shale producers.
Before that, Trump took an opposite view, repeatedly needling Saudi-led OPEC and Russia for forming a pact since 2017 to prop up oil prices by cutting production when their budgets required it. Trump feared pain at the pump for U.S. drivers, since gasoline prices are tied to the global oil price.
“Trump undertook one of the most epic metamorphoses in energy policy history, converting from a lifelong archfoe of OPEC to not only its best friend, but a master of the deal,” McNally said. “If OPEC+ needed lobbying from Trump to get a deal, that is not going to happen under Biden.”
Biden is unlikely to care much about the health of oil markets or play the role of oil diplomat as he undertakes other preoccupations, including his goal of beginning to wean the U.S. off fossil fuels and move to 100% clean energy to combat climate change.
But some of his expected policy moves could challenge OPEC+’s goal of balancing supply and demand. For example, analysts expect him to ease sanctions pressure on Iran, a once-large oil producer that was cut off from the global market by Trump as part of his decision to reject a nuclear deal reached by the Obama administration. Biden has pledged to reengage with Iran on reaching a compromise nuclear deal. Gulf countries in OPEC such as Saudi Arabia and the United Arab Emirates supported Trump’s Iran policy, since it damaged Tehran, their archenemy, and allowed them to gain market share.
Biden also could less strictly enforce sanctions on Venezuela, another formerly top oil producer that has seen its industry crumble under the socialist regime of Nicolas Maduro.
The sanctions relief could flood the market with more oil than it needs in the second half of 2021, complicating OPEC+ efforts to unwind the deep production cuts it enacted during the pandemic, said Abhi Rajendran, director of research at Energy Intelligence.
“Sanctions will not be lifted, but they will not be enforced as crazily,” Rajendran said.
Biden and the Democrat-controlled Congress plan to challenge Saudi Arabia over human rights and foreign policy issues, such as the war in Yemen, in a way Trump never did. Democrats have also promised a harder line on Russia, which recently roiled relations further by hacking into U.S. government systems.
“The Saudis have a much more complicated path forward in the context that surrounds the overall bilateral relationship with the U.S.,” said Amy Myers Jaffe, managing director of the Climate Policy Lab and a research professor at Tufts University Fletcher School.
The Saudis angered Republican oil-state senators by instigating a price war with Russia amid the demand collapse last spring, which helped prices tank to record lows.
But the Saudis have looked to build goodwill with the international community lately.
This week, Saudi Arabia vowed to cut its oil production by 1 million barrels per day for the next two months, providing a gift to fellow producers still struggling with weak demand, at the expense of losing market share for itself.
Matt Reed, the vice president of Foreign Reports, said Saudi Arabia’s decision makes sense, signaling the kingdom’s concerns about the pace of the oil market recovery and the health of the global economy. He suggested Biden would welcome the move, as it inherits a fragile economy.
“OPEC+ is trying to stabilize oil prices and avoid volatility during an extremely uncertain time,” Reed said. “Any president can appreciate that.”
U.S. shale producers will be able to benefit from the higher price and increase their output, but Reed said Saudi Arabia isn’t worried about the competition. OPEC+ members would benefit from Biden’s plans to challenge the oil industry with stronger emissions regulations and policies promoting electric vehicles.
“Biden is going to try to make things as difficult for the U.S. oil industry to grow in any meaningful way,” Rajendran said. “This is a good thing for OPEC+ since U.S. supply is going to be structurally lower than it was pre-COVID.”
That could lead to the U.S. relying more on oil imports after the country became a net total energy exporter in 2019 for the first time since 1952.
Rajendran is expecting oil prices to rise in the next few years above $70 per barrel, compared to the low $50s today, because of underinvestment by producers scarred from the pandemic and an eventual return to normal demand levels.
Higher prices sought by oil-producing nations might not be a bad thing for Biden, Jaffe argued, since lower prices make it more difficult for electric vehicles to be competitive with gasoline-powered ones.
“If you are wanting to deploy alternative energy, electric vehicles, and hydrogen, all of those do better in a high-price scenario,” Jaffe said. “The idea that somehow, you just want to bankrupt the U.S. oil industry, that is not a sophisticated understanding of how energy markets work when you are trying to pursue an energy transition.”
