In the second presidential debate back in October, US President-elect Joe Biden surprised everyone by saying he would transition the United States from oil industry if he became president. “We have to move toward a net zero emissions,” he said. “The first place to do that by the year 2035 is in energy production and by 2050 totally,” he added, only for Donald Trump to interrupt him saying “Is he gonna get China to do it?”
I’m going to rejoin the Paris Accord and make China abide by what they agreed to.President-Elect Joe Biden
The air has been quite tense between the seats of the oil bloc Organization of the Petroleum Exporting Countries (OPEC), as Biden’s electoral votes inched closer to 270. Key OPEC members who preferred to remain anonymous expressed their anxiety, telling Reuters that they expect Biden to modify U.S. diplomatic relations with three members of OPEC; the de facto leader Saudi Arabia, and sanctioned countries Iran and Venezuela, as well as with key non-OPEC producer Russia.
The OPEC is an intergovernmental organization of 13 nations; six of which are Arab countries whose GDPs heavily rely on oil production and exports.
The world market was dominated by a group of multinational tycoons dubbed as the “Seven Sisters,” five of which were headquartered in the US after the breakup of John D. Rockfeller’s Standard Oil monopoly. The US was and still is the world’s largest producer and consumer of oil.
After World War II, Venezuela and Iran took initiative to improve communication between petroleum-exporting nations. The two allies, who have bonded over the sanctions imposed on both of them by the US, approached Iraq, Kuwait, and Saudi Arabia who were just testing the waters of the oil-producing ocean. The United States had already established the Interstate Oil Compact Commission to join the Texas Railroad Commission in limiting overproduction. Challenged by the US-led monopoly, oil-exporting countries were eventually motivated to form OPEC in 1960 (and later, other blocs) as a counterweight.
The OPEC’s mission statement is to coordinate and unify the petroleum policies of its member countries and ensure the stabilization of oil markets, in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers, and a fair return on capital for those investing in the petroleum industry.
With an influx of oil production in the Middle East leading to fluctuating prices, with a sprinkle of political unrest, disputes are never-ending in the oil-producers casino. The build-up of price wars led US President Donald Trump to form a frenemy coalition known as OPEC+ in December 2016.
Enter COVID — oil demand around the world has dropped by 30% as the pandemic brings the world economy to a standstill. All the while Saudi Arabia and Russia have been flooding markets with extra supply, disrupting the OPEC+ pact and causing a major problem for the economy of the United States. Several U.S. drilling companies have already scaled back production because of the drop in oil prices, which have lost around two-thirds of their value so far this year.
In a way, Trump was able to orchestrate and reopen discussions between Riyadh and Moscow in a series of phone calls last April. Trump said he had made no concessions and did not agree to a U.S. production cut, which would have brought him to court for violating antitrust laws.
Trump’s administration counted on that OPEC+ deal to be his killer card to win the presidential elections, but the ballots caught him (and oil prices) off guard. In fact, oil prices jumped by 4% after Trump falsely claimed victory on November 3rd.
A peek into the future
What does Biden’s policy say? Although no specifics have been mentioned by Biden’s campaign, analysts expect him to increase regulation of the sector, by limiting methane emissions as well as limit fracking on federal land. Biden’s energy plan allocates $2 trillion in clean energy initiatives. However, it is not remotely possible to extinguish oil and gas production in a time when every cent is needed to pull up the economy from the pandemic’s ruins.
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