LONDON/BRUSSELS, Nov 10 (Reuters) – Oil-laden tankers risk being left languishing at sea if insurers do not urgently get clarity on an unfinished G7 and European Union plan to cap the price of Russian crude, two senior industry executives told Reuters.
The Group of Seven (G7), which includes the United States, Britain, Germany and France, agreed in September to enforce a low price on sales of Russian oil.
U.S. officials said the move, which is due to start on Dec. 5, was aimed at allowing it to continue to flow, heading off a potential price shock after total EU bans were ratified in June.
And with just three weeks to go, time is running out to fully convince the shipping services industry it will work.
Concerns are centred around a scenario in which insurers discover that oil in transit at sea, which was believed to have been sold below the price cap, was in fact sold above it.
This would trigger the withdrawal of insurance cover as well as a refusal by buyers to accept delivery, leading to financial and logistical headaches and risking environmental dangers.
“If the time is too short, I think everyone will have a Plan B to de-risk, terminate, stay away, not maybe conclude any new contracts until there is some clarity,” said George Voloshin, Global Anti-Financial Crime Expert at ACAMS, the Association of Certified Anti-Money Laundering Specialists which consults with oil industry bankers, traders and insurers.
If insurance was withdrawn mid-voyage, buyers and traders would have to figure out what to do with a stranded cargo potentially exposed to sanctions, complicating a strategy to deprive Russia of funds over its invasion of Ukraine.
“It will probably be quite messy,” Voloshin said.
A European Commission official said the EU is aware that much more additional detail will be needed as time runs short for businesses to learn about their obligations, but that the issue must be dealt with at the G7 level.
The official spoke to Reuters on condition of anonymity because they are not authorized to speak about the matter.
U.S. State Department Ambassador James O’Brien, who heads the coordination of sanctions against Russia, said G7 countries will be ready with all the operational details and that technical talks were underway on pricing and governance.
‘SANCTION ISLANDS’
But if information gaps remain on the cap, it is possible oil-filled tankers could be left without insurance and marooned near ports, posing a major safety issue for nearby countries in the event of a spill, as well as any cleanup costs.
“In that situation, the vessel will go off risk and financial and technical services will be withdrawn and no one is going to take delivery of the cargo,” Mike Salthouse, head of claims at British-based global ship insurer North, told Reuters.
“This would be a bad development as no one will want uninsured ships sitting off coasts,” he added.
Salthouse said an owner of a ship which was potentially not earning anything for many months “will price that into any decision they make about carrying cargo in the future”, adding that this was likely to act as a disincentive.
“If that happens too often, it will run contrary to what the EU/G7 Coalition is trying to achieve.”
Although the EU ratified the price cap last month, insurers point to still unpublished legal details which must align with incomplete but more detailed U.S. Treasury guidance, especially over guarantees that insurers will not face surprise obstacles in the middle of a ship’s voyage.
“We need regulation in the G7 community which is similar, that is, the U.S. – where we have interim guidelines in the meantime – the U.K. and the EU,” said Lars Lange, secretary general of the International Union of Marine Insurance (IUMI).
“We fear that if we get different regulations from these three ‘sanction islands’ we will struggle to comply with all at the same time,” Lange said, adding that any vessels which are spurned by ports pose serious consequences.
The IUMI and the separate International Group insurance association have let G7 and EU governments know that their guidelines must include guarantees that the proof that a Russian cargo was sold in line with the cap is all that an owner is required to check before agreeing to load and carry the cargo.
Editing by Alexander Smith
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The relationship between the United States and Saudi Arabia is one of the most important on the planet. And lately, it’s also been one of the most awkward.
Angry officials in Washington vowed “consequences” after Saudi-led OPEC sharply cut oil production earlier this month, driving up pump prices just weeks before the midterm elections.
US lawmakers are threatening steps that were unthinkable not long ago, including banning weapons sales to Saudi Arabia and unleashing the Justice Department tofile a lawsuit againstthe country and other OPEC members for collusion.
Riyadh has been caught off guard by the thirst for revenge from US politicians. And Saudi officials are hinting at payback – including dumping US debt – that could have huge ripple effects in financial markets and the real economy.
Neither side is even trying to hide the tension. After a top Saudi official suggested the kingdom has decided to be the more mature party, a top White House official responded by saying, “It’s not like some high school romance here.”
What happens next is critical.
If this decades-old relationship devolves into a full-blown break-up, there could be enormous consequences for the world economy, not to mention international security.
“This is a new low. We have seen a degradation in the US-Saudi relationship for years but this is the worst it’s been,” said Clayton Allen, director at the Eurasia Group.
The spat is linked to one of the biggest sore spots among voters during the Biden era: Inflation and high gas prices.
After trying and failing to persuade OPEC to ramp up oil production, President Joe Biden reversed his 2020 campaign promise to make Saudi Arabia a “pariah” over its human rights record. Biden visited Saudi Arabia over the summer and even fist-bumped Crown Prince Mohammed bin Salman.
US officials thought they reached a secret deal with Saudi Arabia to finally boost supply of oil through the end of the year, The New York Times reported this week.
They were wrong.
OPEC and its allies, known as OPEC+, responded by increasing oil production by a measly 100,000 barrels per day – the smallest increase in its history. The move was widely viewed as a “slap in the face” of the Biden administration.
What came next was worse.
In early October, OPEC+ announced plans to slash oil production by 2 million barrels per day – a move that briefly drove up oil and gasoline prices at a time of high inflation and infuriated US politicians.
“Neither side seems to understand each other,” Allen said. “Riyadh underestimated the severity of the US backlash. And the US assumed we had an unspoken agreement.”
Fatih Birol, executive director of the International Energy Agency, described the move as “unprecedented” and “unfortunate” in an interview with CNN International on Thursday.
“When the global economy was on the brink of a global recession, they decided to push the prices up,” Birol said.
The tensions haven’t eased, and officials from both sides have sharpened their criticism of each other in recent days. In one telling episode, a top Saudi minister wentfrom defending Biden’s energy strategy to slamming it.
During the OPEC+ press conference in early October, Saudi Energy Minister Prince Abdulaziz bin Salman seemed to praise Biden’s decision to release unprecedented amount of emergency oil reserves from the Strategic Petroleum Reserve.
“I wouldn’t call it a distortion. Actually, it was done in the right time,” Prince Abdulaziz told reporters. “If it didn’t happen, I’m sure that things might be different than what it is today.”
Flash forward three weeks, and that same Saudi minister sang a very different tune.
“People are depleting their emergency stocks, had depleted it, used it as a mechanism to manipulate markets while its profound purpose was to mitigate a shortage of supply,” Prince Abdulaziz said during a conference in Saudi Arabia this week. “However, it is my profound duty to make it clear to the world that losing emergency stock may become painful in the months to come.”
The criticism is noteworthy, especially given that OPEC openly manipulates markets in many ways by withholding supply to support prices.
The risk is that the tension devolves into a tit-for-tat cycle of retaliation that undermines global economic stability, or whatever economic stability there is at the moment.
Lawmakers from both sides of the aisle have stepped up their calls to enact NOPEC (No Oil Producing and Exporting Cartels) legislation that would empower the Justice Department to go after OPEC nations on antitrust grounds. Although NOPEC isn’t new, it seems more possible now than at any point in recent memory. Eurasia Group pegs a 30% chance of NOPEC enactment and a 45% chance of a watered-down version of the bill.
“You can’t overstate how upset a huge number of lawmakers are,” said Allen.
Lawmakers aren’t only upset, they realize OPEC is not exactly endearing itself to voters.
“This is popular. American sentiment is anti-Saudi. This now has domestic political utility for American politicians. That’s where we are now,” said Karen Young, senior research scholar at Columbia University’s Center on Global Energy Policy. “NOPEC would be harder to veto than in the past.”
Saudi Arabia could respond to penalties from Washington with drastic steps of their own,ratcheting up the conflict further.
Saudi officials have privately warned that the kingdom could sell US Treasury bonds if Congress passes NOPEC, The Wall Street Journal reported this week, citing people familiar with the matter.
At a minimum, dumping US debt would create uncertainty in markets at an already-perilous moment. A fire sale would drive up Treasury rates, destabilizing markets and raising borrowing costs for families and businesses.
And of course, Saudi Arabia’s own holdings would be damaged in such a fire sale.
Saudi Arabia is sitting on roughly $119 billion of US debt, according to Treasury Department data, making it theworld’s 16th largest holder of Treasuries.
Another risk is that Saudi Arabia, the de facto leader of OPEC+, could remove further supply from world oil markets – or at least refuse to respond to future price spikes as the West continues to crack down on Russia.
Further curbs on OPEC supply would lift gasoline prices and worsen inflation, raising already-high recession risks.
All of this explains why a full-blown breakdown in relations between the United States and Saudi Arabia may be the last thing the fragile economy needs right now.
BAKU, Oct 27 (Reuters) – Igor Sechin, chief executive of Russian oil giant Rosneft (ROSN.MM) and one of Vladimir Putin’s closest allies, on Thursday heaped praise on China’s leaders and said Taiwan would return to its “native harbour” on time.
Sechin said that decisions taken by the 20th Communist Party Congress, which cemented Xi Jinping position as the most powerful Chinese leader since Mao Zedong, would provide for a new level of development for the country.
The deepening “no limits” partnership between the rising superpower of China and the natural resources titan of Russia is one of the most intriguing geopolitical developments of recent years – and one the West is watching with anxiety.
“The position of (China’s) leadership is highly respected, which calmly and openly, without false premises, sets out its positions, even on the most difficult issues, such as the problem of Taiwan, which in this regard can be assessed as somewhat exaggerated,” Sechin told an international economic forum in Baku, previously held in Italy’s Verona.
He said U.S. attempts to create its own complex microchip industry showed that “Taiwan’s return to its native harbour” was “on schedule”.
Taiwan’s Foreign Ministry condemned the comments, saying only the island’s people could decide their future.
“Neither our government, people nor the international community can accept absurd remarks that are in China’s cortege or demean Taiwan’s sovereign status,” it said in a statement.
China claims democratically governed Taiwan as its own territory and has ramped up military and political pressure against the island over the past two years. Taipei strongly rejects Beijing’s sovereignty claims.
Russia has repeatedly warned the United States against meddling in China’s affairs while President Vladimir Putin has explicitly backed Xi over the fate of the island where the defeated Republic of China government fled in 1949 after losing the Chinese civil war to Mao’s communists.
BP’S DIVIDEND
Sechin said Rosneft had transferred $700 million in second-half 2021 dividends into special accounts for BP (BP.L), which remained Rosneft’s “shadow” shareholder despite a decision to leave the company following the start of what Moscow calls its “special military operation” in Ukraine.
BP said its position on Russia has remained unchanged.
“In February we announced our decision to exit Rosneft and our other Russian businesses – we continue to pursue that,” it said in emailed comments.
Sechin also said that Saudi Arabia’s position on the global oil market was “reasonable” and based on analysis of oil supply and demand.
The United States, he said, had tried to persuade Saudi Arabia to postpone oil output cuts as part of OPEC+.
“Today, the energy policy of the (Joe) Biden administration is solving exclusively pre-election tasks with a planning horizon of two weeks, given that the elections to the U.S. Congress are on November 8,” Sechin said.
“This includes attempts to persuade Saudi Arabia to at least postpone the announcement of this decision until the elections.”
The OPEC+ group of global leading oil producers, which includes Saudi Arabia and Russia, agreed this month to cut its combined output by 2 million barrels per day despite opposition from the United States, which wants lower fuel prices.
Saudi Arabia rejected criticism of an OPEC+ decision to cut its oil production target despite U.S. objections and said that Washington’s request to delay the cut by a month would have had negative economic consequences.
Reporting by Nailia Bagirova and Olesya Astakhova; Additional reporting by Ron Bousso and Ben Blanchard in London; Writing by Vladimir Soldatkin; Editing by Guy Faulconbridge, Nick Macfie and Mike Harrison
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DUBAI, United Arab Emirates (AP) — Saudi Arabia’s powerful 37-year-old crown prince will not attend an upcoming summit in Algeria after his doctors advised him not to travel, the royal court said Sunday.
The acknowledgement from the state-run Saudi Press Agency came hours after Algeria’s presidency said Crown Prince Mohammed bin Salman will not be attending because of health reasons, spurring speculation about his condition.
Royal doctors advised Prince Mohammed not to fly long distances to avoid the “trauma’” on his middle ear, the statement said, without elaborating. The nature of Prince Mohammed’s condition remained unclear, but ruptured eardrums can result from middle ear infections and trauma such as excessive pressure from flying long distances.
Prince Mohammed has quickly risen to power under his 86-year-old father King Salman. Much of the focus on the Al Saud royal family in recent years has been on King Salman’s health, with analysts suggesting Prince Mohammed could rule the OPEC-leading nation for decades after ascending to the throne.
Early Sunday, news broke on the the Algeria Press Service that Prince Mohammed was skipping the summit for unexplained health reasons. The statements in Arabic and French on referred to a statement from the office of President Abdelmadjid Tebboune about a telephone call between him and Prince Mohammed.
In the call, Prince Mohammed “apologized for not being able to participate in the Arab Summit to be held on Nov. 1 in Algiers, in accordance with the recommendations of doctors who advise him not to travel,” the statement read.
“For his part, Mr. President said he understood the situation and regretted the impediment of the Crown Prince, His Highness the Emir Mohammed Bin Salman, expressing his wishes for his health and well-being.”
The state-run Saudi Press Agency reported the call between Tebboune and the prince earlier Sunday but omitted discussion of the prince’s health. It just said the call focused on “the aspects of bilateral relations between the two fraternal countries” and possible joint cooperation.
The Arab League Summit in Algeria represents the first time the regional body has met since the coronavirus pandemic took hold across the world.
The Arab League, founded in 1945, represents 22 nations across the Mideast and North Africa, though Syria has been suspended amid its long-running war. While unified in the call for the Palestinians to have an independent state, the body has otherwise been largely fractious and unable to enforce its mandates.
Prince Mohammed came to power in 2015 as a deputy crown prince, then quickly became crown prince some two years later after King Salman removed Prince Mohammed bin Nayef, a once-powerful figure as head of Saudi counterterrorism efforts and a close American ally.
His rise to power, however, has seen the kingdom undergo rapid changes, like allowing women to drive and opening movie theaters while loosening the grip of ultraconservatives in the kingdom. However, the prince also engaged in a corruption crackdown that turned a luxury hotel in Riyadh into a prison for powerbrokers in the kingdom who could have challenged his rule. He’s also led an internationally criticized Saudi military campaign in a ruinous war in Yemen that rages even today in the Arab world’s poorest country.
U.S. intelligence services have linked Prince Mohammed to the 2018 killing and dismemberment of Washington Post columnist Jamal Khashoggi, a critic of his rule. The kingdom has denied the prince was involved, though its prosecution of the government squad behind Khashoggi’s slaying has been held behind closed doors.
Recently, the prince has come under intense American criticism over Saudi Arabia leading OPEC and allied nations to agree to an oil production cut of 2 million barrels per day.
The Future Investment Initiative, the crown prince’s annual summit drawing global investors to the kingdom, begins Tuesday amid that U.S. pressure. Prince Mohammed has attended sessions in previous years.
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Follow Jon Gambrell on Twitter at www.twitter.com/jongambrellAP.
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Associated Press writer Isabel DeBre in Jerusalem contributed to this report.
President Joe Biden on Wednesday will announce the sale of an additional 15 million barrels from the Strategic Petroleum Reserve in December, a senior administration official said, as his administration seeks to counter market pressures created by the OPEC+ decision to cut oil production targets just three weeks from the midterm elections.
The announcement of the sale is the latest step in the White House’s unprecedented plan to balance global markets and dampen soaring gas prices. It marks an extension of the six-month program that was designed to provide a bridge for domestic producers to ramp up their own production as the global market faced spasms in the wake of Russia’s invasion of Ukraine, even as the release is composed of barrels earmarked in his March announcement.
That action, which has rolled out in regular sales over the last several months, combined with global economic concerns to help drive gas prices down for nearly three months straight.
“The price of gas is still too high, and we need to keep working to bring it down,” Biden said at an event in Los Angeles last week, adding that he planned to announce additional actions in the coming days.
The planned action would fulfill the administration’s announcement in March to release a historic 180 million barrels from the SPR over a six-month period to counter soaring energy prices triggered by Russia’s invasion of Ukraine. The action, which has rolled out in regular sales over the last several months, combined with global economic concerns to help drive gas prices down for nearly three months straight.
Biden has also made clear to his advisers that if the conditions merit, he is prepared to authorize future releases to balance the market. The President, the official said, directed his energy and economic teams to be prepared to authorize “significant additional sales in coming months” if the global market conditions require it.
The President on Wednesday will also detail the administration’s plan to refill the emergency reserve, which is now at its lowest level in nearly 40 years, laying out an important marker for market participants, given the scale of the federal action over the course of the last six months.
Biden will announce that the administration intends to repurchase crude oil for the emergency reserve when prices are at or below between $67 and $72 per barrel.
“We think that’s an important signal for producers that the SPR will be part of helping to helping to moderate and stabilize price flows – not only when prices are going high but when prices are going low,” the official said.
As part of this, the administration will also be finalizing a rule to permit the US government to enter into fixed price contracts with suppliers through a competitive bid process, which will facilitate the future repurchasing of crude.
The plan also serves the purpose of countering any criticism about the unprecedented scale of Biden’s reserve releases, one that officials said underscores the administration’s intent to refill when market conditions make it most advantageous.
“This administration is very committed – and we’re going to reiterate this commitment – to replenishing the SPR,” the official said. “We view the SPR is an incredibly important national security asset and we want to make sure that it serves its purpose well into the future.”
The official noted that the reserve, which has roughly 400 million barrels, is still the largest in the world and that the US remains positioned to deal with any crisis or challenges that would require its use.
“It’s important to understand and underscore, 400 million barrels is a lot of barrels,” the official said.
US officials strategically slowed the size of sales as the six-month program neared its deadline in an effort to ease the market transition until the decision by OPEC+, which set off furious pushback from US officials and an intensive effort inside the administration to produce options to counter any resulting increase in gas prices.
That included additional releases from the reserve, and officials have closely eyed Biden’s ability to trigger new releases within the bounds of the initial program as Election Day looms.
This headline and story have been updated with additional developments Tuesday.
WASHINGTON, Oct 17 (Reuters) – The Biden administration plans to sell oil from the Strategic Petroleum Reserve in a bid to dampen fuel prices before next month’s congressional elections, three sources familiar with the matter said on Monday.
President Joe Biden’s announcement is expected this week as part of the response to Russia’s war on Ukraine, one of the sources said.
The sale would market the remaining 14 million barrels from Biden’s previously announced, and largest ever, release from the reserve of 180 million barrels that started in May.
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The administration has also spoken with oil companies about selling an additional 26 million barrels from a congressionally mandated sale in fiscal year 2023, which began Oct. 1, a fourth source said.
The Department of Energy will also release further details on eventually buying the oil back, reflecting the White House’s desire to combat rising pump prices while supporting domestic drillers.
Rising retail gasoline prices have helped boost inflation to the highest in decades, posing a risk to Biden and his fellow Democrats ahead of the Nov. 8 midterm elections, in which they are seeking to keep control of Congress.
Biden said last week gasoline prices are too high and that he would have more to say about lowering costs this week. David Turk, his deputy energy secretary, also said last week the administration can tap the Strategic Petroleum Reserve, or SPR, in coming weeks and months as necessary to stabilize oil.
The administration has spoken with energy companies about buying back oil through 2025 to replenish the SPR, the sources said, after Biden in March announced the biggest sale ever, 180 million barrels, from May to October.
The Energy Department still has about 14 million barrels of SPR oil left to sell from the historic release, because selling was slowed in July and August by holidays and hot weather.
Additionally, the administration is mandated by a law Congress years ago to sell another 26 million barrels of SPR oil in fiscal year 2023, which started Oct. 1, a sale likely to come soon, one of the sources said.
“The administration has a small window ahead of midterms to try to lower fuel prices, or at least demonstrate that they are trying,” said a source familiar with the White House deliberations. “The White House did not like $4 a gallon gas and it has signaled that it will take action to prevent that again.”
Average U.S. gasoline prices hit about $3.89 a gallon on Monday, up about 20 cents from a month ago and 56 cents higher than last year at this time, according to the AAA motor group. Gasoline prices hit a record average above $5.00 in June.
The DOE and the White House did not immediately respond to requests for comment about the sales.
In May, the DOE said it would launch bids late this year for a buy-back of about one third of the 180 million barrel sale. It suggested then that deliveries would be linked to lower oil prices and lower demand, likely after fiscal year 2023, which ends Sept. 30 next year. Two sources said the buy-backs could continue through 2025.
Biden officials in recent months also urged oil refiners including Exxon Mobil (XOM.N), Chevron (CVX.N) and Valero (VLO.N) to not increase exports of fuel and warned them it could take action if plants do not build inventories.
The administration has not taken a potential ban of gasoline and diesel exports off the table although opponents of such a move say it could exacerbate Europe’s energy crisis and raise fuel prices at home.
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Reporting by Jarrett Renshaw, Timothy Gardner, Laura Sanicola and Andrea Shalal; Editing by Sam Holmes
Our Standards: The Thomson Reuters Trust Principles.
Laura Sanicola
Thomson Reuters
Reports on oil and energy, including refineries, markets and renewable fuels. Previously worked at Euromoney Institutional Investor and CNN.
U.S. says more than one OPEC country coerced into cut
Iraq, Kuwait, other OPEC+ members stand by decision
Saudi defence minister says decision was purely economic
CAIRO Oct 16 (Reuters) – OPEC+ member states lined up on Sunday to endorse the steep production cut agreed this month after the White House, stepping up a war of words with Saudi Arabia, accused Riyadh of coercing some other nations into supporting the move.
The United States noted on Thursday that the cut would boost Russia’s foreign earnings and suggested it had been engineered for political reasons by Saudi Arabia, which on Sunday denied it was supporting Moscow in its invasion of Ukraine.
Saudi King Salman bin Abdulaziz said the kingdom was working hard to support stability and balance in oil markets, including by establishing and maintaining the agreement of the OPEC+ alliance.
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The kingdom’s defence minister and King Salman’s son, Prince Khalid bin Salman, also said the Oct 5 decision to reduce output by 2 million barrels per day – taken despite oil markets being tight – was unanimous and based on economic factors.
His comments were backed by ministers of several OPEC+ member states including the United Arab Emirates.
The Gulf state’s energy minister Suhail al-Mazrouei wrote on Twitter: “I would like to clarify that the latest OPEC+ decision, which was unanimously approved, was a pure technical decision, with NO political intentions whatsoever.”
His comment followed a statement from Iraq’s state oil marketer SOMO.
“There is complete consensus among OPEC+ countries that the best approach in dealing with the oil market conditions during the current period of uncertainty and lack of clarity is a pre-emptive approach that supports market stability and provides the guidance needed for the future,” SOMO said in a statement.
Kuwait Petroleum Corporation Chief Executive Officer Nawaf Saud al-Sabah also welcomed the decision by OPEC+ – which includes other major producers, notably Russia – and said the country was keen to maintain a balanced oil markets, state news agency KUNA reported.
Oman and Bahrain said in separate statements that OPEC had unanimously agreed on the reduction.
Algeria’s energy minister called the decision “historic” and he and OPEC Secretary General Haitham Al Ghais, visiting Algeria, expressed their full confidence in it, Algeria’s Ennahar TV reported.
Ghais later told a news conference that the organisation targeted a balance between supply and demand rather than a specific price.
Oil inventories in major economies are at lower levels than when OPEC has cut output in the past.
Some analysts have said recent volatility in crude markets could be remedied by a cut that would help attract investors to an underperforming market.
U.S. National Security Council spokesman John Kirby said on Thursday that “more than one” OPEC member had felt coerced by Saudi Arabia into the vote, adding that the cut would also increase Russia’s revenues and blunt the effectiveness of sanctions imposed over its February invasion of Ukraine.
King Salman said in an address to the kingdom’s advisory Shura Council that the country was a mediator of peace and highlighted the crown prince’s initiative to release POWs from Russia last month, state news agency SPA reported.
Khalid bin Salman said on Sunday he was “astonished” by claims his country was “standing with Russia in its war with Ukraine.”
“It is telling that these false accusations did not come from the Ukrainian government,” he wrote on Twitter.
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Reporting by Moataz Mohamed, Yasmin Hussien, Maha El Dahan and Aziz El Yaakoubi; additional reporting by Nayera Abdallah and Ahmed Tolba; Editing by Louise Heavens, Will Dunham and Alexandra Hudson
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DUBAI, United Arab Emirates (AP) — Saudi Arabia said Thursday that the U.S. had urged it to postpone a decision by OPEC and its allies — including Russia — to cut oil production by a month. Such a delay could have helped reduce the risk of a spike in gas prices ahead of the U.S. midterm elections next month.
A statement issued by the Saudi Foreign Ministry didn’t specifically mention the Nov. 8 elections in which U.S. President Joe Biden is trying to maintain his narrow Democratic majority in Congress. However, it stated that the U.S. “suggested” the cuts be delayed by a month. In the end, OPEC announced the cuts at its Oct. 5 meeting in Vienna.
Holding off on the cuts would have likely delayed any rise in gas prices until after the elections.
Rising oil prices — and by extension higher gasoline prices — have been a key driver of inflation in the U.S. and around the world, worsening global economic woes as Russia’s months-long war on Ukraine also has disrupted global food supplies. For Biden, gasoline prices creeping up could affect voters. He and many lawmakers have warned that America’s longtime security-based relationship with the kingdom could be reconsidered.
The decision by the Saudi Foreign Ministry to release a rare, lengthy statement showed how tense relations between the two countries have become.
The White House pushed back on Thursday, rejecting the idea that the requested delay was related to the U.S. elections and instead linking it to economic considerations and Russia’s war on Ukraine.
“We presented Saudi Arabia with analysis to show that there was no market basis to cut production targets, and that they could easily wait for the next OPEC meeting to see how things developed,” said John Kirby, coordinator for strategic communications at the National Security Council.
“Other OPEC nations communicated to us privately that they also disagreed with the Saudi decision, but felt coerced to support Saudi’s direction,” he added, without naming the countries.
U.S.-Saudi ties have been fraught since the 2018 killing and dismemberment of Washington Post columnist Jamal Khashoggi, which Washington believes came on the orders of Saudi Crown Prince Mohammed bin Salman. Meanwhile, higher energy prices provide a weapon Russia can use against the West, which has been arming and supporting Ukraine.
The statement by the Saudi Foreign Ministry acknowledged that the kingdom had been talking to the U.S. about postponing OPEC+’s 2 million barrel cut announced last week.
“The government of the kingdom clarified through its continuous consultation with the U.S. administration that all economic analyses indicate that postponing the OPEC+ decision for a month, according to what has been suggested, would have had negative economic consequences,” the ministry said in its statement.
The ministry’s statement confirmed details from a Wall Street Journal article this week that quoted unnamed Saudi officials saying the U.S. sought to delay the OPEC+ production cut until just before the midterm elections. The Journal quoted Saudi officials as describing the move as a political gambit by Biden ahead of the vote.
The kingdom also criticized attempts to link its decision to Russia’s war on Ukraine.
“The kingdom stresses that while it strives to preserve the strength of its relations with all friendly countries, it affirms its rejection of any dictates, actions, or efforts to distort its noble objectives to protect the global economy from oil market volatility,” it said. “Resolving economic challenges requires the establishment of a non-politicized constructive dialogue, and to wisely and rationally consider what serves the interests of all countries.”
Both Saudi Arabia and the neighboring United Arab Emirates, key producers in OPEC, voted in favor of a United Nations General Assembly resolution Wednesday to condemn Russia’s “attempted illegal annexation” of four Ukrainian regions and demand its immediate reversal.
In Congress, U.S. Sen. Chris Murphy, a Democrat from Connecticut who long has been critical of Saudi Arabia, proposed a new freeze on military aid to the kingdom. He suggested stopping a planned transfer of surface-to-air missiles to Riyadh and instead sending them to Ukraine, which has faced a renewed barrage of Russian fire in recent days.
Saudi Arabia has been targeted by Yemen’s Iranian-backed Houthi rebels who hold that country’s capital amid the long, grinding war in the Arab world’s poorest country. American air defenses have been crucial in downing Houthi-launched, bomb-carrying drones targeting the kingdom.
Once muscular enough to grind the U.S. to a halt with its 1970s oil embargo, OPEC needed non-members like Russia to push through a production cut in 2016 after prices crashed below $30 a barrel amid rising American production. The 2016 agreement gave birth to the so-called OPEC+, which joined the cartel in cutting production to help stimulate prices.
The coronavirus pandemic briefly saw oil prices go into negative territory before air travel and economic activity rebounded following lockdowns around the world. Benchmark Brent crude sat over $92 a barrel early Wednesday, but oil-producing nations are worried prices could sharply fall amid efforts to combat inflation.
Biden, who famously called Saudi Arabia a “pariah” during his 2020 election campaign, traveled to the kingdom in July and fist-bumped Prince Mohammed before a meeting. Despite the outreach, the kingdom has been supportive of keeping oil prices high in order to fund Prince Mohammed’s aspirations, including his planned $500 billion futuristic desert city project called Neom.
Prince Mohammed and his father, King Salman, hosted former President Donald Trump on his first trip abroad and enjoyed a closer relationship with his administration. Yet even Trump pressured the kingdom over oil production, once telling a crowd that King Salman “might not be there” without U.S. military support.
On Tuesday, Biden warned of repercussions for Saudi Arabia over the OPEC+ decision.
“There’s going to be some consequences for what they’ve done, with Russia,” Biden said. “I’m not going to get into what I’d consider and what I have in mind. But there will be — there will be consequences.”
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Associated Press writer Aamer Madhani in Washington contributed to this report.
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Follow Jon Gambrell on Twitter at www.twitter.com/jongambrellAP.
Saudi Arabia rejects framing OPEC+ decision as political
Says it told U.S. a delay would be economically negative
Says decision was based on market balance, curbing volatility
White House says it presented analysis saying cuts would hurt
CAIRO, Oct 13 (Reuters) – Saudi Arabia rejected as “not based on facts” criticism of an OPEC+ decision last week to cut its oil production target despite U.S. objections, and said on Thursday that Washington’s request to delay the cut by a month would have had negative economic consequences.
The White House pushed back against that on Thursday, saying it presented the Saudis with an analysis that showed the cuts could hurt the world economy, and alleging the Saudis pressured other OPEC members on a vote. Officials from both countries are expected to discuss the situation shortly.
The back-and-forth has added to what has already been a frosty period of relations for the two countries, who have had an energy-for-security alliance for decades.
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OPEC+, the producer group comprising the Organization of the Petroleum Exporting Countries (OPEC) plus allies including Russia, last week announced a cut of 2 million barrels per day to its production target after weeks of lobbying by U.S. officials against such a move.
The move came even though fuel markets remain tight, with inventories in major economies at lower levels than when OPEC has cut output in the past.
The OPEC+ cut has raised concerns in Washington about the possibility of higher gasoline prices ahead of the November U.S. midterm elections, with the Democrats trying to retain their control of the House of Representatives and Senate.
U.S. President Joe Biden pledged earlier this week that “there will be consequences” for U.S. relations with Saudi Arabia after OPEC+’s move.
Asked on Thursday about the situation during a Los Angeles trip, Biden told reporters “We’re about to talk to them.”
The OPEC+ decision was adopted through consensus, took into account the balance of supply and demand and was aimed at curbing market volatility, the Saudi foreign ministry said in a statement on Thursday.
The Saudi foreign ministry statement referred to consultations with the United States prior to the Oct. 5 OPEC+ meeting in which it was asked to delay the cuts by a month.
“The Kingdom clarified through its continuous consultations with the U.S. administration that all economic analyses indicate that postponing the OPEC+ decision for a month, according to what has been suggested would have had negative economic consequences,” the Saudi foreign ministry statement said.
The United States accused Saudi Arabia of kowtowing to Moscow, which objects to a Western cap on the price of Russian oil in response to its invasion of Ukraine.
“We presented Saudi Arabia with analysis to show that there was no market basis to cut production targets, and that they could easily wait for the next OPEC meeting to see how things developed,” said White House spokesman Jack Kirby, in a statement, which added that other OPEC nations told the United States that they felt “coerced” to support the Saudi decision.
The Saudi foreign ministry statement, quoting an unnamed official, stressed the “purely economic context” of the oil cut. Oil demand has weakened worldwide, with OPEC, the U.S. Energy Department, and the International Energy Agency all lowering forecasts for 2023 demand this week.
However, the IEA on Thursday added that OPEC’s move could worsen demand, saying “higher oil prices may prove the tipping point for a global economy already on the brink of recession.”
The Saudi statement said the kingdom views its relationship with the United States as a “strategic one” and stressed the importance of mutual respect. The Gulf Cooperation Council (GCC) issued a statement in support of Saudi Arabia’s comments praising the kingdom’s efforts to protect the market from volatility.
In research last week, Goldman Sachs said in the last 25 years OPEC has never cut production when inventories in Organization for Economic Co-operation and Development countries – composed of 38 of the world’s richest economies – were so low. OECD stocks are currently 8% below their five-year average. However, they noted that OPEC reduced output during periods of weak demand.
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Reporting by Ahmad Elhamy, Moaz Abd-Alaziz and Maha El Dahan; Editing by Jacqueline Wong, Tom Hogue, Jane Merriman and Marguerita Choy
Our Standards: The Thomson Reuters Trust Principles.
RIYADH, Saudi Arabia—Days before a major oil-production cut by OPEC and its Russia-led allies, U.S. officials called their counterparts in Saudi Arabia and other big Gulf producers with an urgent appeal—delay the decision for another month, according to people familiar with the talks. The answer: a resounding no.
U.S. officials warned Saudi leaders that a cut would be viewed as a clear choice by Riyadh to side with Russia in the Ukraine war and that the move would weaken already-waning support in Washington for the kingdom, the people said.
Saudi officials dismissed the requests, which they viewed as a political gambit by the Biden administration to avoid bad news ahead of the U.S. midterm elections, on which control of Congress hangs. High gas prices and inflation have been central issues in the campaign.
Instead, the people said, the kingdom leaned on its OPEC allies to approve the cut, which is aimed at reducing production by 2 million barrels a day.
Adrienne Watson,
a National Security Council spokeswoman, rejected Saudi contentions that the Biden administration efforts were driven by political calculations. U.S. officials questioned a Saudi analysis that the price of oil was about to plunge and urged them to wait and see how the market reacted. If the price did collapse, U.S. officials told their Saudi counterparts, OPEC+ could react whenever they needed.
“It’s categorically false to connect this to U.S. elections,” Ms. Watson said. “It’s about the impact of this shortsighted decision to the global economy.”
President Biden visited Saudi Arabia in July with the goal of repairing relations with the kingdom.
Photo:
Evan Vucci/Associated Press
National Security Council spokesman
John Kirby
said Tuesday that President Biden believes that the U.S. should review the relationship with Saudi Arabia in light of the OPEC+ decision, “and take a look to see if that relationship is where it needs to be and that it is serving our national security interests.” He said the president was willing to discuss the bilateral relationship with members of Congress.
On Tuesday Prince Faisal bin Farhan, the Saudi foreign minister, said the OPEC+ decision was purely economic and had no political dimensions. The alliance seeks to stabilize energy markets and advance the interests of producers and consumers, he said in an interview with Saudi-owned Al Arabiya television.
Prince Faisal said relations with the U.S. are long standing and strategic and that military cooperation between the two countries has contributed to peace and stability in the region.
U.S. officials said the OPEC+ decision was unhelpful as inflation driven by high energy prices threatens global growth and represents an economic weapon against the West for Russian President Vladimir Putin. It threatens to drive up American gasoline prices ahead of the Nov. 8 midterms.
The one-month delay requested by Washington would have meant a production cut made in the days before the election, too late to have much effect on consumers’ wallets ahead of the vote.
High oil prices have been beneficial for OPEC+, an alliance of oil-producing countries that controls more than half of the world’s output. WSJ’s Shelby Holliday explains what OPEC+ countries are doing with the windfall and why they aren’t likely to distance themselves from Russia. Illustration: Adele Morgan
Since the OPEC+ decision, the White House vowed to fight OPEC’s control of the energy market. Lawmakers from across the political spectrum called on the U.S. to cut off arms sales to Saudi Arabia. And U.S. officials started looking for ways to punish Riyadh.
In one of its first responses, U.S. officials said, the Biden administration is weighing whether to withdraw from participation in Saudi Arabia’s flagship Future Investment Initiative investment forum later this month.According to people familiar with the matter, the U.S. has pulled out of a working group meeting on regional defenses next week at the Gulf Cooperation Council, based in Saudi Arabia.
Mr. Biden’s visit to Saudi Arabia in July was meant to repair relations after the president entered office with a vow to treat the kingdom as a pariah over human rights, particularly the 2018 killing of Saudi journalist Jamal Khashoggi at the hands of Saudi agents.
Images of the president’s fist bump with Crown
Prince Mohammed
bin Salman became a polarizing symbol of the trip.
But according to people inside the Saudi government, Mr. Biden’s July visit did little to change Prince Mohammed’s determination to chart a foreign policy independent of U.S. influence, in a break from almost 80 years of American-Saudi partnership.
If anything, said the people inside the Saudi government, the visit angered Prince Mohammed, who was upset that Mr. Biden went public with his private comments to the Saudi royal over Mr. Khashoggi’s death, which prompted Saudi officials to publicly contradict Mr. Biden’s characterization of their interaction.
U.S. officials said they saw no indications in their talks with Saudi leaders in recent months that Mr. Biden’s comments about Mr. Khashoggi had been damaging to ties.
Saudi Arabia’s Prince Abdulaziz bin Salman, in white at last week’s OPEC+ gathering, lobbied other oil ministers to outdo September’s production cut, delegates said.
Photo:
christian bruna/EPA/Shutterstock
Prince Mohammed—who runs the kingdom day to day for his father,
King Salman
—has tried to maximize Saudi Arabia’s economic strength. With high energy prices, the kingdom’s economic growth this year is estimated by the IMF at more than 10%—making it one of the best performers globally.
Prince Mohammed has told advisers that he isn’t willing to sacrifice much for the Biden administration, said the people inside the Saudi government, citing its critical view of the Saudi war in Yemen, bid to close a nuclear deal with Iran that Riyadh opposes and Mr. Biden’s own comments on the prince.
In August, the Saudis had planned to push OPEC+ to raise oil production by 500,000 barrels a day in an effort to please Mr. Biden, but Prince Mohammed ordered the increase lowered to a token 100,000 barrels a day after the Biden visit, the people inside the Saudi government said.
The U.S. State Department’s energy-security envoy,
Amos Hochstein,
sent the Saudi energy minister,
Prince Abdulaziz
bin Salman, an email that suggested he had broken his word promising a larger increase, people familiar with the matter said.
The email angered Prince Abdulaziz and strengthened his resolve to forge an oil policy independent of the U.S., the people said.
In September, Prince Abdulaziz engineered OPEC+’s first production cut since the pandemic, erasing the 100,000 barrels a day increase from August. Then, before the Oct. 5 OPEC+ meeting, Prince Abdulaziz called Persian Gulf oil chiefs and urged them to back a bigger cut, OPEC+ delegates said.
He cited a Western plan for an oil-price cap as a direct attack on crude producers, according to OPEC+ delegates. “It’s us against them,” he told at least two Gulf oil ministers in phone calls, according to the delegates.
U.S. officials launched an intense lobbying campaign to persuade Saudi Arabia to delay its plans, people familiar with the matter said. White House officials held multiple calls with Prince Mohammed, the people said, and Treasury Secretary
Janet Yellen
spoke to the Saudi finance minister.
The United Arab Emirates, another significant OPEC producer, opposed the production cut and advocated privately for a one-month delay, in line with U.S. requests, said people familiar with its position. In the days leading up to the Oct. 5 OPEC+ meeting in Vienna, Emirati officials communicated intensely with their Saudi and U.S. counterparts in an effort to prevent the decision, the people said.
Kuwait, Iraq and Bahrain also pushed back privately against the proposed cut, arguing it could trigger a recession that would sap oil demand, but all these countries ultimately went ahead with the decision in order to preserve unity within OPEC+, U.S. and regional officials said.
U.S. officials said they were blindsided by the size of the cut, believing OPEC+ would only cut one million barrels a day.
Russia had lobbied the Saudis to enact the production cut, OPEC+ delegates said. Kremlin spokesman Dmitry Peskov called the OPEC+ decision “balanced, thoughtful and planned work of the countries.”
The White House has said the OPEC+ decision shows that the group is clearly aligned with Russia now. U.S. officials warned that the Saudi move could imperil more than $100 million in active foreign military sales that Riyadh is seeking from the U.S.
U.S. lawmakers announced plans to reintroduce a bill to immediately suspend arms sales to Saudi Arabia. Any hopes the Saudis had of securing more precision guided missiles from the U.S. have been all but quashed, U.S. officials said.
Some U.S. lawmakers want to pull American troops out of Saudi Arabia. And Senate leaders from both parties are backing a bill that would allow the Justice Department to sue Saudi Arabia and other OPEC nations for illegal price fixing.
Among those calling on the U.S. to punish Saudi Arabia for the move was U.S. Sen.
Robert Menendez,
(D., N.J.), who vowed to use his position as chairman of the Senate Foreign Relations Committee to block any future arms sales to the kingdom.
“There simply is no room to play both sides of this conflict—either you support the rest of the free world in trying to stop a war criminal from violently wiping off an entire country off of the map, or you support him,” he said. “The Kingdom of Saudi Arabia chose the latter in a terrible decision driven by economic self-interest.”
Saudi officials said the OPEC+ production cut was necessary to protect their economy.
By early October, oil prices had fallen over 30% from a peak in June, and were threatening to fall below $80 a barrel. Saudi Arabia is likely to need $76-$78 a barrel to balance its budget next year, economists say, based on preliminary forecasts.
Brent crude traded at $94.01 on Tuesday, up 13% since hitting a low of $82.86 on Sept. 26.
Saudi officials told their American counterparts that they believed the oil market could collapse if they didn’t act, and fall to $50 a barrel—a move they feared would imperil the kingdom’s Vision 2030 economic plan to diversify its economy, said people familiar with the matter.
To entice the Saudis to delay their decision, U.S. officials told the kingdom they would buy oil on the market to replenish Washington’s strategic stockpiles if the price of Brent, the main international benchmark, fell to $75 a barrel, according to U.S. officials and people inside the Saudi government.
Such a large American purchase of oil could have put a floor on prices. The Saudis refused the offer.
—Nancy A. Youssef, Timothy Puko and Michael Amon contributed to this article.
Write to Summer Said at summer.said@wsj.com, Benoit Faucon at benoit.faucon@wsj.com, Dion Nissenbaum at Dion.Nissenbaum@wsj.com and Stephen Kalin at stephen.kalin@wsj.com
