OPEC-building

White House makes last-ditch effort to stop OPEC from cutting oil production to prevent a ‘total catastrophe’

Multiple sources have confirmed that the Biden administration launched a massive pressure campaign to stop Middle Eastern allies from cutting their oil production.

This push comes before Wednesday’s critical meeting of OPEC+. The international cartel representing oil producers is widely expected to announce a substantial cut in output in an attempt to increase oil prices. This would lead to gasoline prices rising in the United States, five weeks before the midterm elections.

Over the past few days, President Joe Biden’s top-most energy, economic, and foreign policy officials were enlisted to lobby their counterparts in Middle Eastern allied nations like Kuwait, Saudi Arabia, UAE, and Saudi Arabia to oppose cutting oil production.

Members of the Saudi-led oil cartel, along with its allies, including Russia, will likely announce production cuts that could reach more than one million barrels per hour. This would be the largest reduction since the outbreak of the pandemic and could cause a sharp rise in oil prices.

The White House circulated some draft talking points to the Treasury Department Monday. They were obtained. These frame the possibility of a production cut in terms of a “total catastrophe” and warn that it could be seen as a hostile act.

“It is important that everyone knows how high the stakes are,” stated a US official. This was described as a broad administration effort, which is expected to continue leading up to Wednesday’s OPEC+ meeting.

Another US official stated that the White House is experiencing “a spasm of panic” and is “having a spasm.”

Adrienne Watson, the spokesperson for the National Security Council, stated that “we’ve been clear that oil supply must meet the demand to support growth economics and lower prices to consumers around the globe and that we will continue to speak with our partners about this.”

Biden believes that a drastic reduction in oil production couldn’t have come at a better time. For months, the administration has been engaged in a sustained domestic and international policy effort to reduce rising energy prices following Russia’s invasion of Ukraine. The result was a drop in gasoline prices for nearly 100 consecutive days.

Just one month before the crucial midterm elections, US gasoline prices have started to rise again. This is a risk that the White House desperately wants to avoid. The news that OPEC+ has taken major action poses a particular challenge to US officials who have been trying to assess domestic options to stop gradual increases over the past few weeks.

Watson, the spokesperson for the NSC, declined to comment on midterms. He stated instead that “Thanks to President’s efforts energy prices have fallen sharply from highs and American consumers pay far less at the pumps.”

All hands on deck

Amos Hochstein is Biden’s top energy ambassador. He has been a key player in the lobbying effort. This has been much more extensive than previously reported due to extreme concern at the White House about the possible cut. Hochstein traveled to Jeddah last month with Brett McGurk, a top national security official, and Tim Lenderking, the administration’s special representative to Yemen, to discuss a variety of security and energy issues, following Biden’s July high-profile trip to Saudi Arabia.

As part of the latest attempt to prevent a production cut, officials from the economic and foreign policy departments have been involved in reaching out to OPEC countries.

The White House asked Treasury Secretary Janet Yellen, the Treasury Secretary, to present the case to several Gulf finance ministers, including those from Kuwait and UAE. She will try to convince them that a production reduction would be very detrimental to the global economy. The US argued that a reduction in oil production will cause more downward pressure on the prices in the long term, which is the opposite of what a substantial cut would accomplish. They argue that cutting oil production now would increase inflation risks, lead to higher interest rates, and eventually cause a greater chance of recession.

The White House draft talking points recommended that Yellen communicates with her foreign counterparts, “There is a great risk to your reputation as well as relations with the United States and West if you proceed.”

Senior US officials acknowledged that the administration had been lobbying the Saudi-led alliance for several weeks to convince them to stop cutting oil production.

Saudi Arabia is being courted

This comes just three months after President Joe Biden visited Saudi Arabia and met Crown Prince Mohammed bin, Salman. The trip was motivated in part by a desire for Saudi Arabia, the de facto leader, to increase oil production, which would help lower the skyrocketing gas prices.

Critics argued that Biden had gotten very little from the trip when OPEC+ agreed to a small 100,000 barrel increase in production a few weeks later.

It was intended to be a meeting with regional leaders on issues of national security including Iran and Israel. It was criticized for not delivering results and for restoring the image of the crown Prince, who was directly blamed for the murder of Jamal Khashoggi, a Washington Post columnist.

Biden’s top the Middle East and energy aides, McGurk, and Hochstein, shuffled between Washington, Saudi Arabia, and Washington in the months before the meeting to plan and coordinate the visit.

According to a diplomat in the region, the US campaign to stop production cuts was less of a sell and more an attempt to highlight a crucial international moment due to the ongoing war in Ukraine and its economic fragility. According to another source, a diplomat representing one of the countries was able to describe it as “desperate” by another source.

According to a source familiar with the outreach, a call was made with the UAE but was rejected by Kuwait. The Kuwaiti Embassy in Washington didn’t immediately respond to our request for comment. Saudi Arabia’s embassy did not respond to a request for comment. The UAE Embassy declined to comment.

The White House has resisted the temptation to speak out about the possibility of an oil supply cut.

Karine Jean-Pierre, White House press secretary, said Monday that “We aren’t members of OPEC+” and she didn’t want to be ahead of any potential outcomes. Jean-Pierre stated that the US’s focus remains on “taking every step necessary to ensure that markets are adequately supplied to meet the growing demand for a global economy.”

OPEC’s efforts to increase prices

OPEC+ members consider a more drastic cut because of the sharp decline in oil prices. They have fallen to below $90 per barrel over recent months.

The looming oil price limit that European countries intend to impose upon Russian oil exports in punishment for Russia’s invasion and occupation of Ukraine will be a major concern at Wednesday’s OPEC+ meeting. Many OPEC+ members, including Russia, expressed dissatisfaction with the possibility of a price limit because it would allow consumers to set the price of oil.

The White House talked points to the Treasury including a proposal from the US that if OPEC+ does not agree to a cut this week, the US would announce a buyback of up to 200m barrels to replenish its Strategic Petroleum Reserve (SPR), which is an emergency petroleum stockpile that the US has been using this year to lower oil prices.

According to a senior US official, the administration has been making it clear to OPEC+ that it is ready to purchase OPEC’s oil to replenish the SPR for many months. The US wanted to communicate to OPEC+ that it “won’t leave them dry” if they invest in production and that prices will not fall if there is less global demand.

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