US president Joe Biden maintains that his 15-16 July visit to Saudi Arabia is about more than securing commitments for additional oil supply. But for Americans facing record-high gasoline prices, there is no issue more pressing. The trip faces scrutiny from both sides of Washington's political divide and is being viewed by some as a policy reversal by a leader facing mounting challenges, both home and abroad.
The Biden administration may need to manage expectations for the trip as the signs point to limited outcomes, at best. Saudi Arabia and the UAE hold just shy of 2.5mn b/d of spare crude capacity, but holding that capacity and actually deploying any meaningful part of it are two very different propositions. Opec+ countries, and Saudi Arabia in particular, have been warning for months now against eroding what little capacity there is left unless absolutely critical.
"The impact of the world losing spare capacity is bigger than the impact the current oil price is having," one Opec delegate says. And with record pump prices reflecting refining capacity constraints, "tying the visit to crude production increases represents a wrong understanding of market fundamentals by the US president, similar to his decision to release crude from the SPRs [strategic petroleum reserves] a few months ago", a well-placed Emirati source notes.
A grand market gesture on the part of the Gulf Co-operation Council producers is unlikely, irrespective of Washington's renewed security guarantees and its — foundering — efforts to restore the Iran nuclear deal. Preserving Opec+ unity has been the cornerstone of the group's success since April 2020 — Riyadh and Abu Dhabi would be loath to disrupt that by giving the impression they may take matters into their own hands. But a more subtle commitment on the part of Opec and its non-Opec partners to raise output to "attend to any potential imbalance" over the coming months should not be ruled out.
Opec+ unity informs strategic efforts by the Gulf oil producers to strike a balance between maintaining relations with the east (China and Russia) and the west (the US and the EU), while capitalising on the renewed importance of their oil since Russia's invasion of Ukraine. "The Saudis are not going to put all their eggs in the Biden basket. The US will continue to be their preferred strategic and security partner, but they are not going to break away from Russia or China," a well-placed Saudi source told Argus.
Order, order
Biden has struggled to frame his trip, flipflopping over its purpose while attempting to downplay the Saudi element in the face of heightened domestic criticism. An expected rapprochement with Crown Prince Mohammad bin Salman reflects a more realistic approach by an administration now prioritising order in the Middle East over other value-driven goals.
A reset between Riyadh and Washington, if well managed, could bolster Biden's long-term aims for the region — helping to stabilise global energy markets, ending the war in Yemen and restoring regional relations with Iran. But time is not on his side as inflation at 40-year highs, led by the spike in energy prices, is likely to dominate US voter sentiment at mid-term elections in November.
Engineering closer Saudi-Israeli relations is also on Biden's agenda, as he arrives in Riyadh directly after visits to Israel and Palestine. "The Israelis believe it's really important that I make the trip [to Saudi Arabia]," Biden said last week. The Israelis have played a role in thawing frosty relations between the US and Riyadh and will reap the benefits of further co-operation. But Riyadh appears in no rush to openly normalise relations with Israel, although the Abraham Accords and the recent Negev Summit may offer conduits for deepening ties.
