High Oil Prices Are Crushing Biden’s Energy Policy Plan

President Joe Biden came into office with an agenda prioritizing a shift away from fossil fuels and to renewable energy. He also signaled early on that his administration would be revising U.S. relations with nations that have traditionally been considered close allies, such as Saudi Arabia.

Now, those agendas have been trumped by a much bigger and more immediate problem: keeping gasoline affordable for Americans and reining in runaway inflation, which hit the highest in four decades in January and then beat that in February. And all that was before the war in Ukraine became the only news. Now, the urgency of keeping a lid on oil prices has soared as sharply as prices themselves.

"We are on a war footing," Energy Secretary Jennifer Granholm said at the CERAWeek conference in Houston last week. "The DOE and the Biden Administration is ready to work with you. We need oil and gas production to rise."

Granholm, who has been quite vocal in her support for renewables replacing oil and gas, told the oil industry that a short-term increase in oil and gas would not go counter to the White House's energy agenda. "We can walk and chew gum at the same time," the Energy Secretary said.

Why this could be described as a U-turn on the part of the U.S. Department of Energy, it is by far not the only one. The president has also been making U-turns in a bid to find alternatives to Russian oil and fuels, which Biden banned last week in the latest punitive move against Moscow for its invasion of Ukraine.

For starters, Biden sent envoys to Venezuela, a country sanctioned heavily by his predecessor, Donald Trump, with the Biden administration upholding the sanctions and tying relief to what effectively would amount to regime change.

Earlier this month, before the ban on Russian oil and fuel imports was signed, the United States sent a delegation to Venezuela. The talks, according to reports, concerned conditions under which Washington would lift sanctions but pretty much everyone saw them as an attempt on the part of the U.S. to find a replacement for Russian crude.

Some reports even said the Biden administration had told the Venezuelan side sanctions would be lifted if the state oil company commits to direct supplies of crude to U.S. refiners. Unsurprisingly, the news that the U.S. had approached Caracas sparked criticism in political circles, with Senator Marco Rubio saying that Biden was trying to replace "the oil we buy from one murderous dictator [Russian leader Vladimir Putin] with oil from another murderous dictator [Maduro]."

The Biden administration has also faced criticism for its handling of the Iran talks. Another sanctioned country, Iran, could become an alternative supplier of crude oil to the United States if the sanctions the Trump administration imposed on Tehran are lifted. The so-called Iran nuclear talks dragged on for months before they were paused after Russia made demands that whatever Washington agrees with Tehran will not affect bilateral trade between Russia and Iran.

Then there is Saudi Arabia. Since last year, the Biden administration has several times tried to persuade Riyadh to boost oil production above its OPEC+ quota in order to arrest the inexorable rise in international prices. Every time, Riyadh has refused to do so, although not in so many words. 

This has left Washington to scramble for an alternative, but it is far from a surprise. After coming into office, the Biden administration released an intelligence report that implicated Crown Prince Mohammed bin Salman, the de facto ruler of the Kingdom, in the murder of Saudi journalist Jamal Khashoggi. Needless to say, Riyadh did not welcome the report.

There has also been bitterness in Riyadh over Biden's distancing from the Yemen war between Saudi Arabia and the UAE, on the one hand, and Iran-backed Yemeni rebels who now control most of the country, on the other. 

Per a recent interview for The Atlantic, his first for a Western media, the Saudi Crown Prince expects a change in attitude in Washington. And if things get a bit more desperate at the White House, he might just get what he wants.

This will, in all likelihood, prompt more criticism from Biden's political opponents. There's fertile ground for such criticism. The approach to Venezuela and attempts to mend fences with Saudi Arabia, not to mention efforts to befriend the U.S. own oil industry, go counter the administration's own agenda. Yet there is little else the White House can do.

As RBC Capital Markets Helima Croft put it in a mixed but accurate metaphor, "The White House has embarked on the oil equivalent of a scavenger hunt," she said as quoted by the Wall Street Journal. "Given the potential magnitude of the Russian losses, the White House will need something akin to a straight flush to pull it off."

Like Europe, the United States leadership is learning some basic political truths the hard way. The biggest among these is that the energy security of your own population will always trump things like strategic geopolitics or moral stances against perceived adversaries. Punishing adversaries may feel good but having enough money to fill up the car and keep the lights on feels even better.

By Irina Slav for Oilprice.com

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