An Austrian soldier guards the entrance to the OPEC headquarters on October 4, 2022 on the eve of the 45th Meeting of the Joint Ministerial Monitoring Committee and the 33rd OPEC and non-OPEC Ministerial Meeting held on October 05, in Vienna, Austria.
Joe Klamar | AFP | Getty Images
Saudi Arabia’s decision to ally with Russia and push through the largest supply cut by OPEC+ since 2020 means it’s time for the U.S. to take every available step it can to boost U.S. energy production.
That could even mean exploring the “nuclear option” — a point I mean literally, in terms of deploying nuclear power to assist in meeting the nation’s energy needs.
Energy policy is an instrument of U.S. foreign policy. Given that a former ally has joined with a current adversary, I would argue that, at least for the moment, all bets are off. It’s time to bring Saudi Crown Prince Mohammed bin Salman and Vladimir Putin to heel, and take away some of the power that OPEC and its allies have.
The OPEC+ cuts were set at some 2 million barrels per day. The decision appears aimed at bolstering oil prices, which had fallen to roughly $80 a barrel from more than $120 in early June. Oil has already started to climb back up above $92 a barrel, despite signs of economic slowing.
The Biden administration — short-term environmental concerns aside — should offer price supports to the entire oil and gas industry, beyond the subsidies already offered, to rapidly boost production in some areas where exploration and production have slowed.
Biden, no doubt, would get pilloried by environmental groups, progressives and even some middle-of-the-road Democrats for potentially accelerating climate change, but short-run needs are paramount if the U.S. would like to maintain long-term control of both our energy security and our national security.
With the imposition of a multiyear price floor, the U.S. could support domestic crude prices at, let’s say, $65 per barrel. That’s high enough to encourage existing fracking efforts while also encouraging additional production. Yet, it’s low enough to help pull the rug out from under a former ally that has shown its allegiance to Moscow. (We do this for all manner of commodity producers, by the way.)
Further, a more rapid addition of U.S. supplies of oil and natural gas would pressure global energy prices greatly and hurt the bottom lines of both Saudi Arabia and Russia, who are trying to ensure $100 per barrel oil to prop up their budgets — and, for Putin, to finance the ongoing war in Ukraine.
A flood of U.S. oil could drive prices back into the $20s even as U.S. companies are guaranteed to earn more.
In the 1980s, when the Saudis were the world’s “swing producer” of oil, they set the global price by raising and lowering production to send prices up or down, depending on prevailing circumstances.
The U.S. is poised to return to being the No. 1 producer next year when daily production reaches the old record of 12.3 million barrels per day from the current 11.8 million. (The U.S. has been the world’s largest producer of natural gas since 2017.)
In addition, the U.S. should expedite the build out of pipelines, transmission lines and LNG terminals so that the U.S. can more effectively — and profitably — export surplus oil and natural gas to an energy-starved world.
Adding a little fuel to that fire could help Europe avoid future disruptions of supplies as long as sanctions remain in place against a would-be Peter the Great.
Beyond that, continuing an “all of the above” energy policy — which should absolutely include modern nuclear power plants — would go far in stabilizing global energy markets, ensure more than adequate supplies of power and energy here at home and, once and for all, cripple the OPEC cartel and Russia, whose economy rests almost entirely on energy exports.
And, yes, the U.S. and Europe should place a cap on Russian oil prices to also rob Moscow of the revenue it needs to sustain its invasion of Ukraine.
And, as some foreign policy experts have suggested of late, the U.S. should cut off sales of military hardware to MBS and deprive him of U.S. intelligence, rendering the alliance moot and leaving the Saudis at risk of armed conflict with regional rivals. That should be their problem from now on.
The U.S. should also strike a deal with Iran and Venezuela to allow oil to flow from those pariah states.
At the end of the day — and this may be naive — but what’s the difference between doing business with Saudi Arabia and Russia compared with doing business with Venezuela and Iran? Long ago, we learned that the enemy of my enemy is my friend.
It may well be time to put that philosophy to work and turn the tables on nations whose revenue options are far more limited than our own.
— Ron Insana is a CNBC contributor and a senior advisor at Schroders.