By Hashim Abid
JOE Biden’s energy policy elicits a diversity of views, with some misunderstanding it, others applauding it, and some still struggling to grasp it.
Many fail to grasp how Biden’s contradictory energy policy affect the developments and future prospects of the US and global energy markets in light of the ongoing geopolitical conflict in Ukraine is another aspect that many are trying to understand.
To comprehend Biden’s energy policy, it is important to understand the political context of the current ongoing issues.
To begin with, the Biden Administration, in reality, does not aim to end the war, but rather to weaken Russia since the Secretary of Defense Lloyd James Austin III made this clear last year. The reason behind this is to weaken Russia to a point where the US can negotiate a deal more favourable to its interests – most possibly containing China’s future rise.
To achieve this, in addition to military aid to Ukraine, sanctions have been imposed on Russia’s energy sector with the goal of reducing its long-term revenue to fund its war within Ukraine. On the other hand, the Biden Administration wants to maintain the flow of oil because if prices rise too high, many countries in Europe could be severely affected by the consequences of the war.
To address this, the US and its European allies in G7 meetings have established a price cap to ensure the stability of oil prices while simultaneously reducing Russia’s oil and gas revenues. This sort of calculation and balance, however, becomes difficult due to continuous fluxes occurring domestically in the US and in geopolitical landscape abroad.
The situation, however, becomes even more complex when large oil corporations, who in most cases also happen to be huge supporters of the Republican Party, oppose President Biden’s plan for green clean energy transition. In an effort to maintain their profits and hinder Biden’s popularity, these corporations have intentionally kept global oil prices high through preservation of low supply.
In response, President Biden on several occasions has taken an active stance against oil corporations, including the consideration of legal action at one-point last year. However, when this approach did not yield results, the Biden administration shifted its focus to collaborating with European nations to regulate energy prices through the implementation of price caps.
Late year, President Biden also threatened oil companies with windfall taxes and “other restrictions” if they don’t stop returning cash to shareholders and start investing this cash in more oil production.
The industry, via the American Petroleum Institute, responded with yet another reiteration of the fact that the oil market is a global one, and producers do not have complete control over prices because it is also a free market.
Therefore, both large and small oil producers were unfazed by President Biden’s criticism of the industry. The sector simply carried on with its usual practices since the recovery of oil prices, which included distributing profits to shareholders and being mindful in their spending plans.
The main objective of the Biden administration is to lower energy costs worldwide, diminish Russia’s revenue, and avoid further deterioration of Europe, all while limiting the dominance and sway of large oil companies.
This is critical because as wealth of big oil increases through rising oil prices, particularly with China’s demand due to Covid-19 restrictions being relaxed, would damage President Biden’s standing and hinder his ability to fulfil his environmental pledges; therefore, ultimately affecting his chances of re-election.
Recently, it was revealed that big oil corporations made historical profit margins, which places Biden under a difficult position to take some sort of action yet, no avail.
Likewise, the prolonged and robust resistance from oil corporations has led Biden to succumb to the pressure. Last week, ConocoPhillips received approval to drill in Alaska, which has drawn criticism from Democrats regarding President Biden’s commitment to the transition to green energy.
According to multiple sources, the Biden administration has put forth an $8 billion drilling project located on Alaska’s north slope named the ConocoPhillips Willow project. This would be one of the largest oil and gas developments on federal territory.
However, it has sparked heated opposition from environmental groups who claim that its approval goes against the President’s comprehensive climate targets. The recent drilling approval complicates the issue even further for President Biden and his administration.
On one hand, he needs to stabilize oil prices, but to do that, he must support the oil corporations by passing favourable legislation. On the other hand, this contradicts his commitment to green energy, as expressed by public advocacy groups and others since such legislation empowers big oil.
The current situation can be understood as follows:
The Eurasian continent holds great significance for America’s global primacy. The conflict in Ukraine is, in essence, a proxy war between the US and Russia, with Europe being drawn into the American sphere of influence due to NATO. Despite the underlying causes of the conflict, whether it was Russia’s initial intent or the US’s plan to engage Russia in a war within Ukraine to weaken it, the US so far, has been successful in politically isolating Russia from China, increasing its influence within Europe, and overall undermining Russia.
Therefore, the US wants to put an end to Russia’s destabilizing and revisionist behaviour once and for all, but to do so, the current administration also needs to maintain relatively stable prices in the global energy market otherwise, it would invite further problems for it.
This is where the domestic battle comes into play, with oil corporations pressuring Biden to abandon his green agenda, or else US energy companies will continue to create obstacles for the President.
On the other hand, if Biden continues to give in to the big oil pressure, it will harm his re-election chances and potentially pave the way for a Republican takeover, something that many interest groups would be delighted with.
For now, the Biden administration doesn’t have many options besides continuing its current course and trying to protect its political wins as much as possible.
Furthermore, there are hedge funds and asset managers like Blackrock a $10 trillion company who have their hands in both baskets- both big oil and in green transitions- where there is continuous contradictions in their investment commitments towards green clean energy and oil because profit is the ultimate aim not really the environment for such financial firms.
Recently, the West Texas Intermediate (WTI) crude oil, the benchmark for the United States, saw an increase of 2.57 per cent to reach $80.07 per barrel. Similarly, Brent crude oil also rose 2.57 per cent in international trading to reach $86.67 per barrel. The high prices of oil are expected to persist for the next few months, due to China’s increasing demand for oil and its efforts to meet that demand. It is estimated that, WTI will reach approximately $87 per barrel and Brent $92 per barrel. However, these projections may start to decline to WTI being at $83 per barrel and Brent at $87 per barrel moreover, would remain at such rates until the end of 2023.
The future of oil prices, however, ultimately depends on several factors, including domestic stability between different interest groups within the US and the continuous progression of US foreign policy.
Opinion articles featured on Redaction Report reflect the views of their author, not those of the publication as a whole. Only Editorials display the opinions of our management.
Featured Image: Gage Skidmore @Flickr (CC BY-SA 2.0)
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