Opec’s headquarters in Vienna, Austria. Biden’s policy choices will be critical in the outlook for the Middle East’s oil and gas producers. Photo: Reuters
Opinion
Tilak K. Doshi
Tilak K. Doshi
Fate of Middle East oil producers turns on Biden’s actions on climate and Iran
If Biden cuts US oil and gas output in favour of renewables owing to his commitment to climate change goals, prices will improve for the other major producers
But if sanctions against Iran are dropped, even lower prices await
As President-elect Joe Biden prepares to enter the White House, one might presume that the campaign rhetoric of the Democratic Party will be pared back as the real costs of some of the more radical proposals become apparent. Most observers would contend, however, that the odds are low that a “tack back to the centre” (à la former president Bill Clinton) will happen.
The Middle East is at a crossroads, and Biden’s policy choices will be critical in the outlook for the region’s oil and gas producers. In his last debate with Donald Trump, Biden’s pledge to “transition away from the oil industry” put climate change concerns as the top policy priority. The contrast in Republican and Democratic world views over fossil fuels and global energy geopolitics could not be starker. Biden is more committed than any previous presidential nominee to radical climate action.
The United States recently overtook Saudi Arabia as the world’s largest petroleum producer. In response, Saudi Arabia launched last year a self-debilitating and unsuccessful price war to starve out the producers behind the US “shale revolution”. But US oil producers have been facing pressure not only from Saudi Arabia and its allies in the Opec oil producers’ cartel.
In 2017, a report by the US Director of National Intelligence accused forces in Russia, a major oil producer, of pushing anti-fracking environmental propaganda, and US intelligence reports have been cited in accusations of Russian funding for anti-fracking groups. “By targeting fracking, Putin hopes to increase oil and gas prices, destabilise the US economy and threaten America’s energy independence,” said a Newsweek report that year.
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Coronavirus: How badly is Covid-19 disrupting the oil industry in the US and beyond?
Coronavirus: How badly is Covid-19 disrupting the oil industry in the US and beyond?
The surge in US oil and gas production over the past decade allowed Trump to pursue his “America first” and “energy dominance” agendas. It increased US foreign policy leverage, giving his administration greater latitude in supporting allies and sanctioning rivals.
But a Biden administration focused on constraining US oil and gas production in favour of renewable energy and climate policy priorities would deliver what Russia, Saudi Arabia and other Opec+ members have failed to achieve with an all-out price war – the incredible prospect of their largest competitor exiting voluntarily.
On the face of it, things could not look better for the major oil and gas producers. No price or disinformation wars need to be waged by US competitors if the Biden administration forces a “transition” away from oil and gas production. Russia’s anti-fracking propaganda war appears to have been more effective than the Saudi price war – in that a Biden presidency would be stacked with climate change advisers who probably support the very same NGOs funded by Russian money.
Still, there are limits to what a US president can achieve. The Senate is likely to remain Republican-controlled and hence resistant to Biden’s campaign pledge for net zero emissions in the power sector by 2035 and all of America by 2050.
Even if Democrats wrest back control of the Senate, support may not be forthcoming from the states that are dependent on fossil fuels or are major producers. Moderates from both parties in oil and gas-dependent states such as Colorado, New Mexico, North Dakota, Oklahoma and Texas would be fearful of destroying jobs and tax revenues while trying to recover from the pandemic recession.
People receive bags of food, including turkeys, at a Thanksgiving food distribution sponsored by area health centres, churches and local politicians on November 20 in New York City. As a result of the Covid-19 pandemic, an estimated 50 million people could be food insecure in the US this year. Photo: Getty Images / AFP
Still, the world’s oil and gas producers can count on Biden to undo many of Trump’s initiatives in energy and environmental affairs. He has promised executive orders to end fracking, and oil and gas drilling on federal lands. A politicised Environmental Protection Agency – following the previous Obama-Biden playbook – would discourage fossil fuel developments on private lands through administrative and regulatory procedures. The blocking of oil and gas pipelines and other fossil fuel infrastructure would gain traction as activists launch legal suits, such as for the Dakota Access Pipeline.
While hobbling US oil and gas production, a Biden administration would also consider ceasing Trump’s sanctions on Iran, another major oil producer. Given Biden’s loyalty to Barack Obama’s legacy project to rehabilitate Iran, he would return to the 2015 nuclear deal if Tehran promises to resume compliance. Once Iranian oil exports return, the Opec+ production cut agreement would collapse, along with oil prices, already low at about US$40 per barrel. Tensions in the Opec+ alliance may well re-emerge.
The fate of oil and gas producers in the Middle East hangs in the balance. They can expect a reprieve from low oil and gas prices if the US ceases to be the world’s leading oil and gas producer – but if sanctions are dropped against Iran, even lower oil and gas prices await.
Dr Tilak K. Doshi is senior visiting research fellow at the Middle East Institute, National University of Singapore
This article appeared in the South China Morning Post print edition as: Drilling into oil debate
