September 18, 2023 - 7:15am
Oil prices are on track to reach $100 a barrel this month for the first time in 2023, after surging by almost 30% since June. While prices remain lower than those seen in the wake of Russia’s invasion of Ukraine, it could end up being a key factor in which way the US elections swing next year.
Part of the reason for the higher oil prices is buoyant demand. Despite much of the world economy labouring under high interest rates and low growth, there appears to be sufficient consumer demand to keep oil markets tight. But a more significant cause is the joint decision by Saudi Arabia and Russia to try to push oil to $100 a barrel.
Typically, American presidents facing re-election will leverage the US-Saudi relationship to drive down prices. Studies show that high petrol prices have significant effects on voting in the United States, especially in areas of the country where people are very dependent on car travel. So it should come as no surprise that US presidents try to influence Riyadh to bring down prices, even if only for a short period. During the election in November 2012, oil prices fell to around $86 a barrel — a far cry from the $103 a barrel in April that year. Two weeks after the 2018 midterm elections, then-President Trump wrote a tweet thanking the Saudis for driving down the oil price.
But under the Biden administration, relations between the United States and Saudi Arabia have reached an all-time low, which has been further exacerbated by Mohammed bin Salman’s decision to join the Brics+ alliance this summer. Add to that the prospect of a looming global recession, and it starts to make sense why Opec would want to firm up oil prices before they crash.
Yet it is hard not to think that there is also a political component to the Saudi-Russian decision, too. Vladimir Putin clearly sees more of an ally in Trump than the current President. Whether the Republican could end the Russia-Ukraine war “within 24 hours” (as he has claimed) is questionable, but it seems likely that the Russians would prefer a president who is open to negotiation over one who is completely closed to it.
The potential Saudi political motives are harder to discern, but it is undeniable that, under the Trump administration, relations were much better. While it is possible that the Saudis would prefer to have him back in office, Riyadh’s decision to join Brics+ suggests the kingdom could be moving away from Washington altogether. Perhaps they want to try to play both sides, and think that another Trump presidency would allow them to do so.
Whatever the motivations, however, there is little doubt that these machinations will have a large impact on the forthcoming election. And with America’s strategic petroleum reserve at its lowest level since 1983, it seems that they do not have many cards left to play. Recent inflation data also shows an uptick due to rising oil prices, raising the prospect of even higher interest rates before the election. President Biden must be kicking himself for allowing US-Saudi relations to deteriorate so dramatically.
Philip Pilkington is a macroeconomist and investment professional, and the author of The Reformation in Economics
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SubscribeThe US should ramp up production of its own oil reserves, and lean on allies like Canada to do the same. I’m laughing even as I write this.
Don’t expect any ramp up given the Biden Administration’s war on fossil fuels. Before the mid-terms, the Biden Administration drained the strategic petroleum reserve to taper fuel prices. With that mission accomplished they have no easy way to soften the price hit without upsetting the climate people.
Nowadays gas prices are not the major driver they once were in swinging elections. Gas prices were high in 2012 and President Obama won re-election. Gas prices were moderate under President Trump and he lost in 2020.
Inflation in general is a problem. However many people will vote for President Biden (or against former President Trump) based on abortion and January 6th.
Putin does not view Trump (or any Republican) as being more favorable to Russia than Biden. He accurately recognizes that neoconservative war-maniacs have captured both parties in American politics. If any Republicans are less avid for war against Russia, it is only because they want to move on toward war with China.
Saudi Arabia has its own reasons for wanting a higher price. Not everything is a function of US domestic politics, although it’s true that the days when pressure from Washington could change Saudi production levels are gone.
Riyadh has been invited to join Brics+ but hasn’t yet announced a decision to do so. It probably will, depending on terms.
Something that’s absolutely baffling to me is that the price of gasoline at my neighborhood filling station hasn’t changed one cent in at least six months. Even if there hadn’t been this dramatic rise, one would expect to see some fluctations.
AFAIK Biden has been releasing oil from the strategic reserve to keep prices down
It’s been rattling up in old blighty!
I seriously doubt that Biden is kicking himself for allowing US-Saudi relations to deteriorate; actually I shouldn’t say that, because I have no idea what he really thinks about most anything.
If the Republicans could only find a war-critical alternative, they would storm it over the Dems next year.
Trump will not be allowed to become POTUS again. He was only permitted the first time because Hillary advocated a no-fly zone over Syria and was happier to wage nuclear war with Russia.