Times have changed. In the mid-80s, President Ronald Reagan and King Fahd colluded to crash the oil markets, making it financially impossible for the then-Soviet Union to continue its Afghanistan venture.

Oil markets were decimated. War on Afghanistan became financially untenable for Moscow and, the Soviet Union disintegrated.

Fast forward, and oil continues to be a tool in the hands of the major stakeholders to advance geopolitical objectives.

The players in this geopolitical game today continue to be the same. Interestingly though, they are aligned differently. Then Saudi Arabia, the United States and Pakistan, for its proximity to Afghanistan, were aligned to humiliate and annihilate the then superpower, the Soviet Union. And so, they did. The Soviet Union was eventually eliminated from the global map.

Today, it is a different ball game. Riyadh, in the company of Moscow — is standing up today to Washington.

While the players in this geopolitical game today continue to be the same as before, they are now aligned differently

When the Covid pandemic hit the world, oil market prices crashed. On April 20, 2020, the crude future contract settled at negative $37.63 a barrel on the New York Mercantile Exchange. It has been an uphill task for the Organisation of Petroleum Exporting Countries (Opec) and their allies in the extended OPEC+ to put a floor under the market oil prices. Slashing output remained their only tool.

The Ukraine crisis, however, added another variable to the global energy equation. The United States and its European allies wanted to cut off Russian energy exports to make the war on Ukraine financially untenable for Putin. But that also meant global energy markets would get tight, and prices would soar.

So, it happened. Gas prices at the next-door gas station in the United States, as elsewhere in the world, began rising. In a mid-election year. President Biden could not have afforded that. He looked towards Saudi Arabia, often termed the global gas station, to raise output and cool the energy markets.

To persuade Riyadh to increase output and break the alliance with Moscow in the Opec+, Biden even agreed to reverse his campaign promise of making Saudi Arabia a “pariah” state that ‘it deserved to be,’ undertaking a trip to Saudi Arabia last July. After the trip, US officials thought they had clinched a deal with Saudi Arabia to boost oil supplies through the end of the year. That optimism turned out to be wrong.

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Riyadh is continuing to play cautious. With hikes in global interest rates, a slowdown in China due to its zero Covid-19 strategy and talks of an imminent global recession, producers do not seem prepared for any financial meltdown.

Producers are also seeing the push for higher output and lower prices through the lens of a battle for control over the oil markets, the Financial Times reported. Washington’s plan to impose a price cap on Russian crude oil exports is also a cause of concern to Opec producers. They fear the measure could be used against them in the future.

Further, the US pledge to “transition from oil”, and usher in a new clean energy era while leaning on Opec to keep oil prices low and the decision to begin releasing crude from its emergency reserves was enough to ring alarm bells among the Opec oil producers.

They are not ready to let go of control of oil markets into the hands of ‘wealthy consumers.’ They feel, they need to counter the attempt at forming a ‘buyer’s cartel’.

Hence, when on October 5 the Opec+ met in Vienna, rather than increasing the output as demanded by Biden, they opted to cut output by two million barrels per day. This infuriated Washington. Talks of consequences for Riyadh began on Capitol Hill.

Riyadh is looking at things differently. Instead of accepting the dictates of Washington, Saudi Arabia has adopted a ‘Saudi First’ policy, reported Javier Blas of Bloomberg. Today, to Saudi Arabia and other stakeholders, oil is a product to be sold — not a tool to advance geo-strategic objectives. ‘This is not 1973,’ they insist.

Saudi officials underlined politics was not involved in their decision to cut output. It was based on market conditions. They reject the notion that the decision was made in defence of Russia. “Show me, where is the belligerence?” Saudi oil minister Prince Abdulaziz said after the Opec+ meeting on October 5. “Where is the ill intent?”

Riyadh is heavily dependent on oil revenues and needs to put its own economic interests ahead of domestic US political considerations, Saudi officials are saying. And, with Saudi Crown Prince Mohammed bin Salman pushing ahead with an ambitious plan to diversify the economy at the cost of hundreds of billions of dollars, preserving oil market prices remains a priority to Riyadh.

Elbowing Russia out of the global energy markets is not easy. The crisis now is much bigger than in 1973. For now, gas, oil, coal, and every energy source is under the hammer.

Europe is dependent upon Russian gas supplies, and for it to survive without Russian gas and oil is proving to be extremely difficult, if not impossible. The concern is growing in Europe. There were large protests in Prague recently, chanting why should ‘we suffer for Zelensky?’ The same sentiments are growing in the UK, as in Germany. Even the US is not immune to it.

LNG is no solution. With demand soaring, LNG prices are going up. Those who can afford it, are clinching deals. But Europe too, cannot afford the high-cost LNG for long. It has already begun extracting a political price for itself.

It is also creating a crisis-like scenario for LNG-dependent countries like Pakistan, Bangladesh and, to some extent, India. Affordable LNG is not available to them.

Ever since the 1973 Arab Oil Embargo, the United States and the Organisation for Economic Cooperation and Development (OECD) countries kept insisting upon oil producers that oil is not a political tool to advance geopolitical objectives. It is a commercial product to sell and should be treated as that.

Now is the time for Biden to learn the lesson. Otherwise, markets are in for major chaos.

Published in Dawn, The Business and Finance Weekly, November 7th, 2022