By Dr. Tilak K. Doshi
Now that Joe Biden has most likely won the US presidential election, 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 policies proposed become apparent in post-election reality. Most observers would contend, however, that the odds are low that a ‘tack back to the centre’ (a la President Clinton) will happen.
The Middle East is at the cross-roads, and policy choices made by a future Biden presidency will play a critical role in the outlook for the region’s oil and gas producers. As was apparent through the election campaigning, the contrast in Republican and Democratic world-views over fossil fuels and global energy geopolitics could not be starker. Joe Biden’s pledge to “transition away from the oil industry” in his last debate with Trump put climate change concerns as the top policy priority. He is more committed than any previous presidential nominee to take radical policy actions against the so-called “climate crisis”.
Price and Propaganda Wars
In 2019, the U.S. outproduced Saudi Arabia to become the world’s largest producer of petroleum. In response, Saudi Arabia launched a self-debilitating and unsuccessful price war in late 2014 in its attempt to starve out the so-called high-cost producers that had powered the US “shale revolution”. US oil producers have faced not only market competition by Saudi Arabia and its OPEC allies which attempted to drive high-cost non-OPEC producers out of the market by increasing oil supplies and allowing prices to fall.
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 corporation with direct ties to Putin and Russian oil interests — funnelled more than $43 million to environmental causes. The Foundation funded anti-fracking organizations like the Sierra Club and the Natural Resources Defence Council. Another report states “the Kremlin is financing and choreographing anti-fracking propaganda in the United States… Putin hopes to increase oil and gas prices, destabilize the U.S. economy and threaten America’s energy independence.”
The surge in U.S. oil and gas production over the past decade was used by President Trump to pursue the “America First” and “energy dominance” agendas. It increased its foreign policy leverage in achieving strategic objectives, giving his administration greater latitude to support allies and sanction rivals. But a Biden administration focused on constraining US oil and gas production in favour of renewable energy and climate change policy priorities would deliver what Saudi Arabia, Russia and other members of the OPEC+ group have been seeking all along. It would achieve results that Saudi oil policy had consistently failed to attain by engaging in an all-out price war against a resilient US oil and gas sector.
On the face of it, things couldn’t be looking better for the major oil and gas producers. Under a Biden presidency, Saudi Arabia and Russia – along with other OPEC+ members – face the incredible prospect of their largest competitor agreeing to exit the industry voluntarily. No price or disinformation wars need to be waged by US competitors as the Biden administration forces a “transition” away from oil and gas production. It would seem that Russia’s propaganda war against fracking was the more effective strategy than the Saudi price war, given that a Biden presidency would be stacked by advisors on climate change which support the very same NGOs funded by the Russians.
Checks and Balances
There are limits as to what a US Presidency can do within constitutional limits. There is the likelihood that the US Senate will remain Republican and hence provide a check on the more extreme pledges made in the name of ‘net zero’ emissions in the power sector by 2035 and in the entire economy by 2050.
Even if the Republicans lose control of the Senate, support from senators of states which rely most on fossil fuels either as producers or consumers may not be forthcoming. 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 recovering from the devastating pandemic-induced lockdowns.
Nevertheless, oil and gas producers can count on Mr. Biden to undo most of President Trump’s initiatives in energy and environmental affairs, even if blocked by an uncooperative Congress. As promised, he would issue Executive Orders aimed at ending fracking and oil and gas drilling in federal lands. A politicized Environmental Protection Agency – following the previous Obama-Biden playbook – would discourage the fossil fuels development on private lands in countless ways through administrative and regulatory procedures. The blocking of oil and gas pipelines and other fossil fuel infrastructure would be enabled by activists launching legal suits, as in the recent case of the Dakota Access Pipeline.
The Iran Factor
While hobbling US oil and gas production, a Biden administration will also consider ceasing President Trump’s sanctions on Iran. Given Biden’s loyalty to President Obama’s legacy project to rehabilitate Iran, he would return to the 2015 nuclear deal if Tehran “resumes compliance”. It would be impossible for the OPEC+ production cut agreement to balance global supply and demand were Iranian exports (of over 2.5 million b/d) to resume. The OPEC+ agreement would collapse, along with oil prices from their already low $40/barrel levels. Key OPEC officials are “wary that strains in the OPEC+ alliance could re-emerge with Joe Biden as U.S. President”; indeed, they “would miss President Donald Trump who went from criticising the group to helping bring about a record oil output cut”.
The economic outlook of the Middle East oil and gas producers depends crucially on whether the US ceases to be the world’s leading oil and gas producer (leading to a reprieve from low oil and gas prices) or it drops the sanctions on Iranian exports (leading to even lower oil and gas prices).
Dr. Tilak K. Doshi
Senior Visiting Research Fellow, Middle East Institute, National University of Singapore