President Joe Biden sounded deeply frustrated. Inflation was heading toward a 30-year high and Americans, rich and poor; could see the price of gasoline going up almost daily. Politically, oil was toxic for the White House.
‘The idea that Russia and Saudi Arabia and other major producers are not going to pump more oil so people can have gasoline to get to and from work, for example, is not right,’ Biden said in late October.
First in private and later more publicly, American envoys had spent weeks trying to convince the Saudis to pump more crude — and quickly; according to officials on both sides. The diplomatic pressure was ultimately directed at a 36-year-old man who has the capacity to change the price of oil — and the fortune of politicians in consuming nations — on a whim: Saudi Crown Prince Mohammed bin Salman.
But the kingdom’s day-to-day ruler didn’t budge despite the overtures from American diplomats.
Prince Mohammed was more worried about oil’s supply and demand fundamentals than the political needs of Washington. But if Biden wanted cheaper gasoline; the prince had his own wish list, including something he hasn’t yet got from the current White House — access.
Since taking office, Biden has only spoken with King Salman, Prince Mohammed’s father, and refused to deal directly with the crown prince; who’s still seen as a pariah in the U.S. after the killing of Washington Post columnist Jamal Khashoggi in 2018.
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Ultimately, Biden didn’t get the extra oil he wanted, forcing him to respond on Tuesday by tapping the country’s strategic petroleum reserve; — a decision that risks a further escalation from the Saudi-led OPEC cartel.
For Prince Mohammed, sitting atop what’s sometimes described as the central bank of oil; soaring crude prices are giving him the confidence to demand the attention of Biden, and everyone else. The influx of cash also helps his plan to make the kingdom a global investment powerhouse through the $450 billion Public Investment Fund; the sovereign wealth fund which he also chairs and wants to grow to $1 trillion by 2025.
In early 2020, Saudi Arabia was staring into the abyss. The pandemic led to a crash in oil prices forcing it to hike taxes and boost its borrowing. Now, just over a year later; oil prices and Saudi crude production are booming, helping restore the kingdom’s finances with a wave of petrodollars, replenishing state coffers, and boosting the prince’s standing at home.
“Saudi Arabia is in a strong position,” said Jason Bordoff, dean of the Columbia Climate School and a former senior White House energy official under President Barack Obama. “Oil demand is going up, not down; U.S. shale is not what used to be, and for the foreseeable future the world is going to need more Saudi oil.”
In interviews with former and current western and Arab government officials, diplomats, consultants, bankers and oil executives, a picture emerges: Riyadh is coming out of the Covid crisis stronger, both politically and economically. The officials agreed to speak only under condition of anonymity to discuss private interchanges.
The Saudi resurgence is linked to the world’s thirst for fossil fuels.
Despite the fight against climate change; the world economy is as addicted to oil as it was before the pandemic.
Global consumption is now back to about 100 million barrels a day, a level last seen in 2019.
Despite the release of strategic reserves on Tuesday, Brent crude; the global oil benchmark, has climbed back above $80 a barrel and Saudi oil production will hit 10 million barrels a day next month, well above pre-Covid levels.
If oil prices and Saudi output stay at current levels, the kingdom’s gross oil revenues will top $300 billion in 2022; according to Bloomberg News estimates – putting Riyadh on track to enjoy one of its best ever years. It could be even better. The International Energy Agency believes Saudi oil production may average 10.7 million barrels a day in 2022, the highest ever annual average.
Higher oil prices have “strengthened Saudi Arabia’s position both financially and politically,” said David Rundell; a former U.S. diplomat with decades of experience in the kingdom. “Mohammed Bin Salman’s position will become even more secure.”