With the US midterm election just 3 weeks away, the Biden administration is clearly taking the scenario of fuel price hikes seriously - in the wake of the decision made by the OPEC+ to cut down on the production in order to boost the prices.
Although the decision appears to be collective on the surface, the US government lost no momentum in singling out its most important ally in the Middle East, Saudi Arabia, being behind the move; the political rhetoric against the Kingdom in Washington that borders on threat and transcends the political divide, clearly shows the sensitivity of the issue; it is not just on political grounds, but on clear economic grounds too.
The talks of reviving the NOPEC bill is one option that the Biden administration appears to be contemplating on; if it becomes law, having overcome a few hurdles, it could potentially blacklist the member nations of the OPEC+ on the grounds of price manipulation, in addition to other charges.
In addition, the Biden administration can release more from the SPR, Strategic Petroleum Reserve, in order to lower the price of crude oil; it has already created political buzz, because the reserves now just stand at 450 million barrels - down from 640 million barrels in March this year; it is meant to be for an emergency and the current spikes in oil price did not stem from an emergency.
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| US SPR |
Both strategies, however, are not without risks: on one hand, the administration came to power on the wave of popular Green agenda; on the other hand, the administration is supposed to fulfil its manifesto that clearly states bringing down the use of fossil fuel in favour of renewables.
In this context, the Biden administration has to walk a tight rope without committing an electoral suicide.
According to media reports, meanwhile, the Biden administration may release a further 100 million barrels, perhaps buoyed by the fact that the oil price now remains closer to $80 a barrel; the administration feels the release of SPR played a crucial role in maintaining the prices at the current level.
Analysts, however, do not agree with that notion: they believe the fall in price is more to do with the global economic slowdown and falling gas prices than the release of SPR.
As of 12:20 GMT on Tuesday, the price of WTI, Brent and LPG, liquified natural gas, stood at $85.40,$91.64 and $5.98 respectively. The significant fall in gas prices appears to be a key factor in determining the price of crude oil, because its steep rise in the past has been a catalyst for high oil prices.
The fall of the price of LNG may be due to two factors: the autumn temperatures have not gone single-digit yet in the northern hemisphere; in the UK, for instance, it is still warm and the temperature during the day can go as high as 19 C; moreover, most European countries are managing their gas stocks way above 80% mark, as set out by the European Commission; Germany, for instance, announced last week its storage is over 95% full.
The fall in price of LNG has slowed down the industrialists turning to crude oil as a substitute to keep the running costs low; it may account for the crude oil price remaining static for a considerable period of time despite the production cuts announced by the OPEC+.
Since the JCPOA, 2015 Iran nuclear deal, is all but dead, the possibility of Iran oil reaching the markets is next to impossible in the current political circumstances. Yet, the price of oil has fallen, implying a fall in demand.
When Iran brands the US as the 'Great Satan' over its criticism of handling the recent protests in Iran, the enthusiasm of the latter in reviving the deal just does not exist. In addition, the EU now is up in arms against Iran over its drone supplies to Russia, something that the latter denies.
In short, the sanctions against Iran could be increased instead of the exact opposite being done.
The recent developments in the Middle East is somewhat ominous in nature: never in the recent history that the US has fallen out with two regional rivals simultaneously; it is now the case with its relations with both Saudi Arabia and Iran.
Saudi Arabia and Iran have been at loggerheads for decades and President Raisi of Iran did not succeed in breaking the ice in improving the relations. Iran, meanwhile, may be delighted with the deteriorating relations between the US and Saudi Arabia, as the latter worked in unison to isolate Iran over a range of issues in the international arena.
In this context, Iran will not lose any sleep over Saudi Arabia becoming the lighting rod to absorb the US wrath over the production cuts.
Moreover, the outcome of the US midterm elections could determine the width of the chasm between the two long-term allies, something that Tehran will watch closely - for obvious reasons.
