It’s time to use an “all of the above” energy policy to break the OPEC+ cartel

An Austrian soldier guards the entrance to 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 Clamar | AFP | Getty Images

Saudi Arabia’s decision to ally with Russia and push through the biggest supply cut through OPEC+ since 2020 means it’s time for the US to take all possible steps to boost US energy production.

It could even mean exploring the “nuclear option” – a point I mean literally, in terms of deploying nuclear energy to help meet the nation’s energy needs.

Energy policy is an instrument of American foreign policy. Given that a former ally joined a current opponent, I would say that, at least for now, all bets are off. It’s time to bring Saudi Crown Prince Mohammad bin Salman and Vladimir Putin to heel, and take some power away from OPEC and its allies.

OPEC+ cuts have been set at around 2 million barrels per day. The move appears aimed at supporting oil prices, which had fallen to around $80 a barrel from more than $120 in early June. Oil has already started to rally above $92 a barrel, despite signs of an economic slowdown.

The Biden administration – beyond short-term environmental concerns – should offer price supports to the entire oil and gas industry, beyond the subsidies already offered, to rapidly increase production in certain regions where exploration and production have slowed.

Biden, no doubt, would be pilloried by environmental groups, progressives, and even some middle-of-the-road Democrats for potentially accelerating climate change, but short-term needs are paramount if the United States is to maintain long-term control of climate change. of them. our energy security and our national security.

A multi-year floor price

With the imposition of a multi-year price floor, the United States could support domestic crude prices at, say, $65 a barrel. That’s high enough to encourage existing fracking efforts while encouraging additional production. Still, he’s low enough to help pull the rug out from under a former ally who has shown his allegiance to Moscow. (We do this for all kinds of commodity producers, by the way.)

In addition, a faster addition of U.S. oil and natural gas supplies would put severe pressure on global energy prices and hurt the bottom line of Saudi Arabia and Russia, which are trying to secure $100 a barrel of oil to support their budgets – and, for Putin, to finance the ongoing war in Ukraine.

A flood of US oil could send prices back into the $20 range even as US companies are guaranteed to earn more.

In the 1980s, when the Saudis were the world’s “rotating producer” of oil, they set the world price by raising and lowering production to drive prices up or down, depending on the circumstances.

The United States is set to become the top producer again next year when daily production hits the old record of 12.3 million barrels per day from 11.8 million currently. (The United States has been the world’s largest producer of natural gas since 2017.)

In addition, the United States should accelerate the construction of pipelines, transmission lines, and LNG terminals so that it can more efficiently and cost-effectively export excess oil and natural gas to a starving world. energy.

Adding some fuel to this fire could help Europe avoid future supply disruptions as long as sanctions remain in place against a possible Peter the Great.

An “all energy above” policy

Beyond that, pursue an “all of the above” energy policy – which should definitely include modern nuclear power plants — would go a long way to stabilizing global energy markets, ensuring a more than adequate supply of electricity and energy at home and, once and for all, crippling the OPEC cartel and Russia, whose economy is based almost entirely on energy exports.

And, yes, the United States and Europe should cap Russian oil prices to also deprive Moscow of the revenue it needs to support its invasion of Ukraine.

And, as some foreign policy experts have suggested recently, the United States should cut off military sales to MBS and starve him of American intelligence, rendering the alliance moot and leaving the Saudis at risk of conflict. armed with regional rivals. That should be their problem from now on.

The United States should also strike a deal with Iran and Venezuela to allow oil to flow from these pariah states.

At the end of the day — and this may be naive — but what is the difference between doing business with Saudi Arabia and Russia and doing business with Venezuela and Iran? Long ago we learned that the enemy of my enemy is my friend.

Perhaps it is time to put this philosophy to work and turn the tables on nations whose revenue options are far more limited than ours.

Ron Insana is a CNBC contributor and senior adviser at Schroders.

Comments are closed.