Center East Oil and Gasoline At The Cross-Roads below a Biden Presidency

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Middle East Oil and Gas At The Cross-Roads under a Biden Presidency

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From Dr. Tilak K. Doshi

With Joe Biden most likely winning the U.S. presidential election, Democratic Party's campaign rhetoric could be expected to be scaled back as the real cost of some of the more radical measures proposed becomes apparent in reality after the elections. Most observers would argue, however, that the chances are slim that a "back to the center" (a la President Clinton) will take place.

The Middle East is at a crossroads and the political decisions of a future Biden presidency will play a crucial role in the prospects for oil and gas producers in the region. As the election campaign shows, the contrast between republican and democratic worldviews about fossil fuels and global energy geopolitics could not be stronger. Joe Biden's promise to "deviate from the oil industry" in his final debate with Trump made climate change concerns a top political priority. More than any other presidential candidate, he is determined to take radical political action against the so-called "climate crisis".

Price and propaganda wars

In 2019, the US outperformed Saudi Arabia to become the world's largest producer of oil. As a reaction to this, Saudi Arabia started a self-weakening and unsuccessful price war in late 2014 to starve the so-called high-cost producers who had driven the US “shale revolution” to death. US oil producers were not only faced with market competition from Saudi Arabia and its OPEC allies, who were trying to drive expensive non-OPEC producers out of the market by increasing oil supplies and dropping prices.

In 2017, a report from the Office of the Director of National Intelligence found that the Sea Change Foundation – funded by a Bermuda-based Shell company with direct ties to Putin and Russian oil interests – spent more than $ 43 million on environmental causes. The foundation funded anti-fracking organizations such as the Sierra Club and the Natural Resources Defense Council. Another report reads: "The Kremlin is funding and choreographing anti-fracking propaganda in the US. Putin hopes to increase oil and gas prices, destabilize the US economy and threaten America's energy independence."

The surge in US oil and gas production over the past decade has been used by President Trump to pursue the America First and Energy Dominance agendas. It increased its foreign policy leverage in achieving strategic goals and gave its administration more leeway to support allies and sanction rivals. However, a Biden administration focused on scaling back US oil and gas production in favor of renewable energy policy priorities and climate change would deliver what Saudi Arabia, Russia and other members of the OPEC + group do have searched all along. It would produce results that Saudi oil policy consistently failed to achieve through a full price war against a resilient US oil and gas sector.

At first glance, things couldn't look any better for the big oil and gas producers. Under a Biden presidency, Saudi Arabia and Russia – along with other OPEC + members – face the unbelievable prospect that their main competitor will voluntarily withdraw from the industry. The US competitors do not have to wage wars on price or disinformation as the Biden government forces a "transition" from oil and gas production. It appears that Russia's propaganda war against fracking was the more effective strategy than the Saudi price war, as a Biden presidency would be stacked by climate change advisors backing the same Russian-funded NGOs.

Separation of powers

There are limits to what a US presidency can do within constitutional limits. Chances are the US Senate will remain Republican and therefore review the more extreme pledges made in the name of “net zero” emissions in the electricity sector by 2035 and across the economy by 2050.

Even if Republicans lose control of the Senate, support from senators from states most dependent on fossil fuels as producers or consumers may not come. Moderates of both parties in oil and gas dependent states like Colorado, New Mexico, North Dakota, Oklahoma and Texas feared destroying jobs and tax revenues as they recover from the devastating pandemic lockdowns.

Still, oil and gas producers can count on Mr Biden to reverse most of President Trump's initiatives on energy and environmental issues, even if blocked by an uncooperative Congress. As promised, he would issue executive orders to end fracking and oil and gas drilling in federal states. A politicized environmental protection agency would – according to the previous Obama Biden game book – impede the development of fossil fuels on private land in innumerable ways through administrative and regulatory procedures. Blocking oil and gas pipelines and other fossil fuel infrastructure would be made possible by activists initiating litigation, such as the recent Dakota Access Pipeline case.

The Iran factor

While US oil and gas production is hindered, a Biden administration will also consider ending President Trump's sanctions against Iran. Given Biden's loyalty to President Obama's legacy project to clean up Iran, he would revert to the 2015 nuclear deal if Tehran "resumes compliance." It would be impossible for the OPEC + production cut agreement to reconcile global supply and global demand if Iranian exports (over 2.5m b / d) were resumed. The OPEC + deal, along with oil prices, would collapse from their already low USD 40 / barrel levels. Key OPEC officials are "concerned that tensions may re-emerge in the OPEC + alliance with Joe Biden as US President"; in fact, they would "miss President Donald Trump, who moved from criticizing the group to a record cut in oil production."

The economic outlook for oil and gas producers in the Middle East crucially depends on whether the US is no longer the world's leading oil and gas producer (leading to a rebound from low oil and gas prices) or whether it enforces sanctions on Iranian exports drop (which leads to even lower oil and gas prices).

Dr. Tilak K. Doshi

Senior Visiting Research Fellow at the Middle East Institute of the National University of Singapore

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