White House launches last-ditch effort to dissuade OPEC from cutting oil production to avoid ‘total disaster’



Washington
CNN

According to multiple sources familiar with the matter, the Biden administration has launched a large-scale pressure campaign as a last-ditch effort to dissuade allies in the Middle East from sharply cutting oil production.

The push comes ahead of a key meeting on Wednesday of OPEC+, the international oil producer cartel, which is expected to announce significant output cuts to prop up oil prices. That, in turn, will cause US gasoline prices to rise at a perilous time for the Biden administration, with the midterm elections just five weeks away.

Over the past few days, President Joe Biden’s top energy, economic and foreign policy officials have been tapped to lobby their foreign counterparts in Middle Eastern allies, including Kuwait, Saudi Arabia and the UAE, to vote against the oil production cuts.

Members of the Saudi-led oil cartel and its allies, including Russia, known as OPEC+, will announce potential production cuts of more than a million barrels per day. This would be the biggest drop since the start of the pandemic and could lead to a dramatic jump in oil prices.

Some of the talking points provided by the White House to the Treasury Department on Monday and obtained by CNN described the prospect of output cuts as a “total disaster” and warned that it could be perceived as “hostile action.”

“It’s important that everyone knows how high the stakes are,” said a US official of the administration’s broad effort, which is expected to continue until Wednesday’s OPEC+ meeting.

Another U.S. official said the White House was “spasming and panicking,” describing the administration’s latest effort as “taking off the gloves.” The talking points were developed and modified by staff and were not approved by White House administration or used with foreign partners, the White House official said.

National Security Council spokeswoman Adrienne Watson told CNN, “We’re clear that energy supply must meet demand to support economic growth around the world and lower prices for consumers, and we’ll continue to talk about that with our partners. ”

For Biden, a dramatic drop in oil production could not have come at a worse time. The administration has been engaged in intense domestic and foreign policy efforts for months to moderate rising energy prices following Russia’s intervention in Ukraine. This work paid off, the price of gasoline in the United States fell for about 100 days in a row.

But with critical midterm elections just a month away, U.S. gasoline prices have started to rise again, creating a political risk the White House is desperately trying to avoid. News of major OPEC+ activity poses a particularly acute challenge as US officials move over the past few weeks to weigh potential domestic options to stave off gradual increases.

NSC spokeswoman Watson declined to comment on the midterms, saying instead, “Thanks to the president’s efforts, energy prices have fallen sharply from their highs and American consumers are paying less at the pump.”

Amos Hochstein, Biden’s chief energy envoy, has played a leading role in the lobbying effort, which has been broader than previously reported amid heightened anxiety about a potential cutoff in the White House. Hochstein, along with top national security official Brett McGurk and the administration’s special representative for Yemen, Tim Lenderking, traveled to Jeddah late last month to discuss a range of energy and security issues as a follow-up to Biden’s high-profile visit to Saudi Arabia in July. .

Officials from the administration’s economic and foreign policy teams have also been involved in reaching out to OPEC governments as part of a latest effort to avert production cuts.

The White House has asked Treasury Secretary Janet Yellen to take the issue personally to the finance ministers of some Gulf states, including Kuwait and the UAE, and try to convince them that output cuts would be extremely damaging to the global economy. The US has argued that in the long run, oil production cuts will put downward pressure on prices – contrary to what is expected to be a significant cut. Their logic is that “cutting now would raise inflationary risks,” leading to higher interest rates and ultimately a greater risk of recession.

“If you go forward, there is a huge political risk to your reputation and your relationship with the United States and the West,” Yellen said at White House talking points, suggesting she reach out to her foreign counterparts.

A senior US official acknowledged that the administration has been lobbying the Saudi-led coalition not to cut oil output for weeks.

It comes less than three months after President Joe Biden visited Saudi Arabia and met with Crown Prince Mohammed bin Salman in part to try to persuade Saudi Arabia, the de facto leader of OPEC, to increase oil production. then the rotation would help lower gas prices.

President Joe Biden (L) and Saudi Crown Prince Mohammed bin Salman (R) arrive for a family photo during the Jeddah Security and Development Summit (GCC+3) at a hotel in Jeddah, on the Red Sea coast of Saudi Arabia, on July 16, 2022.  .

When OPEC+ agreed to a modest 100,000 barrel output increase a few weeks later, critics argued that Biden got little out of the trip.

The visit was intended to meet with regional leaders on issues critical to US national security, including Iran, Israel and Yemen. He has been criticized for not delivering results and for rehabilitating the image of the crown prince, who was directly accused by Biden of masterminding the assassination of Washington Post columnist Jamal Khashoggi.

In the months leading up to the meeting, Biden’s top Middle East and energy aides, McGurk and Hockstein, shuttled between Washington and Saudi Arabia, which planned and coordinated the trip.

One diplomatic official in the region described the U.S. campaign to block output cuts as less of a hard sell and an attempt to highlight a critical international moment given economic fragility and the ongoing war in Ukraine. Another source familiar with the discussions told CNN that a diplomat from one of the approaching countries described it as “desperate.”

A call with the UAE was planned, but the effort was rebuffed by Kuwait, a source familiar with the matter said. The Kuwaiti embassy in Washington did not immediately respond to a request for comment. Neither does Saudi Arabia. The UAE embassy declined to comment.

The White House is clearly wary of considering the possibility of sharply cutting oil production.

White House press secretary Karine Jean-Pierre told reporters on Monday that “we are not a member of OPEC+, and so I don’t want to preempt what could potentially come out of this meeting.” Jean-Pierre said the US focus “continues to take every step to ensure markets are sufficiently supplied to meet demand for a growing global economy”.

OPEC+ members are suffering an even more dramatic decline in recent months due to a sharp drop in prices, which have plunged below $90 per barrel.

After Wednesday’s OPEC+ meeting in Vienna, there will also be an oil price cap that European countries intend to impose on Russian oil exports as punishment for Russia’s aggression against Ukraine. Many OPEC+ members, not just Russia, expressed displeasure at the prospect of price increases because of the precedent it could set for consumers rather than the market to dictate oil prices.

Points of discussion with the White House Treasury included a US proposal that if OPEC+ decides against cuts this week, the US will buy back up to 200 million barrels to replenish its Strategic Petroleum Reserve (SPR), an emergency oil stockpile. The US is using it to help lower oil prices this year.

The administration has told OPEC+ publicly for months that a senior US official has said the US is willing to buy OPEC oil to fill the SPR. The idea was to convey to OPEC+ that if the US invests in production, they will not be “left out of the water,” the official said, adding that if global demand falls, prices will not fall.



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