Under the presidency of Joe Biden, the relationship with Saudi Arabia has deteriorated. On Sunday, Saudi Arabia announced that it would lead OPEC, the Organization of the Petroleum Exporting Countries, including Russia, to reduce production by over one million barrels per day beginning next month. The result would be higher gas prices in the U.S. will most likely lead to higher inflation.
In addition, Saudi Arabia announced it would reduce output by another 500,000 barrels per day beginning in May. Following the Saudi statement, oil prices increased by 7.5% at the start of the week. It would be logical to expect a 26-cent increase in U.S. gasoline prices as a result of the reduction, according to Kevin Book, managing director of Clearview Energy Partners.
Sunday’s action followed OPEC’s deal in October to restrict daily output by two million barrels. In October, Biden warned there would be repercussions for what they’ve done with Russia. At the time, Biden refused to discuss what repercussions he would consider or even what he had in mind at the time of the statement. His decision regarding the repercussions was anticipated to relieve the nation that he was, in fact, going to do something.
Perhaps alluding to repercussion was related to the fact that Biden said he would designate Saudi Arabia as a pariah state. A pariah state declaration would be an enormous mistake, according to former Secretary of State Mike Pompeo. The form Secretary of State said to examine the facts. Saudis are a major U.S. security partner. Pompeo said there is only one country in the entire area that wishes to harm the United States and Israel and wipe us from the face of the world. This is the Iranian leadership, and the kingdom of Saudi Arabia has been a vital ally in protecting the U.S. from this menace.
In contrast to the cordial relations that existed between the United States and Saudi Arabia during the Trump administration, the actions of Biden during his presidential campaign, including calling Saudi Arabia a “pariah,” have alienated the Saudis to the point that they have made attempts to reconcile with Iran, their greatest enemy, mediated by China. In 2016, Saudi Arabia severed ties with Iran.
The Wall Street Journal noted Christiaan Malek, global head of energy strategy at JP Morgan, as saying, given the preventative nature of OPEC’s choices, it is evident that OPEC knows something about demand patterns and stockpiles that the U.S. has yet to uncover in overall supply and demand balances. Ole Hansen, an oil analyst at Denmark’s Saxo Bank, stated that Saudi Arabia’s move reflected their concerns that U.S. interest rates might rise.