Almost the Last Straw*

*Editor’s note: On March 4, Russia enacted a law that criminalizes public opposition to, or independent news reporting about, the war in Ukraine. The law makes it a crime to call the war a “war” rather than a “special military operation” on social media or in a news article or broadcast. The law is understood to penalize any language that “discredits” Russia’s use of its military in Ukraine, calls for sanctions or protests Russia’s invasion of Ukraine. It punishes anyone found to spread “false information” about the invasion with up to 15 years in prison.

Analyst Irina Kezik reports on Biden’s new efforts to ruin the global energy market.

President Joe Biden, who has repeatedly blamed Russia and greedy oil producers for creating the global energy crisis, has once again criticized the oil producers for making excessive profits and solving their own problems with shareholders and investors. He warned oil companies about the consequences of their refusal to reduce fuel prices for consumers. In particular, Biden threatened to impose a windfall profits tax on oil companies.

While that was merely a threat used to elicit a response from oil producers, to the president’s great regret, he is unlikely to get what he wants. Moreover, Biden would probably be unpleasantly surprised by the result if he imposes the tax. But, he’s used to failure.

To combat high energy prices, Biden released oil from the Strategic Petroleum Reserve, but global prices have not dropped at all. In addition, he tried to reach an agreement with Saudi Crown Prince Mohammed bin Salman to increase oil production, but that didn’t work either. On top of that, he was unpleasantly surprised by OPEC+’s decision to cut oil production by 2 million barrels per day. And there has been no action with respect to the notorious price cap on Russian oil.

As we approach the Nov. 8 midterm elections, Biden is trying to do more because fuel prices have become a very sensitive issue for him and for the Democratic Party as a whole. U.S. gas prices are currently at an average of $3.78 per gallon, up from $2.38 per gallon when he took office. Naturally, American officials say Russia is primarily to blame for the crisis, followed by the greedy oil companies. The White House is fighting Russia around the clock, while it threatens the oil companies on a regular basis.

Biden recently began complaining that the six major oil companies made about $100 billion in revenues in less than 200 days this year, calling these profits outrageous. In his view, corporations didn’t make money by following the rules; instead, they were trying to recoup their investments in innovation while profiting from the global energy crisis.

Although Biden’s administration has been trying to contain fuel prices since 2021, they have only grown faster in 2022. To be fair, during the pandemic, the U.S. lost about 5% of its total oil refining capacity because certain refineries were simply shut down, and others were converted to produce biofuels, something Biden is proud of.

In fact, during his election campaign, Biden became such an advocate of the green agenda that he vowed to invest $2 trillion during his presidency to convert the national energy industry to renewable energy by 2035. Even then, he mentioned that he wanted to improve the U.S. supply chain by limiting imports from Russia and China.

He has partly fulfilled his promise by completely cutting off Russian oil imports. However, it would certainly be good to know how much of the $2 trillion Biden has actually invested in renewable energy since January 2021 and whether it can truly help his case. Meanwhile, Russian President Vladimir Putin, speaking at a Valdai Club** session, reminded everyone that the U.S. has made some systemic mistakes over the past few years. Putin said that many years of underfunding and lack of investment in conventional energy have led to the current energy crisis, which is exacerbated by the fact that no adequate green energy infrastructure has been prepared to ensure a smooth transition to clean energy.

U.S. oil and natural gas companies have faced reluctance from the banks to provide loans, along with difficulties in obtaining new land and other challenges in building transportation.

On Oct. 27, speaking at the 15th Eurasian Economic Forum, Rosneft CEO Igor Sechin also focused on global fossil fuel energy challenges, including the challenges faced by the U.S. He once again linked the current energy crisis to the fact that Western policymakers have been irresponsibly underfunding the fossil fuel industry to accelerate the green transition.

Sechin asserted that the White House is now demanding that oil companies increase production; however, America’s main policy priorities are aimed at eliminating these companies within five years. Moreover, investment plans in the fossil fuel industry are often designed to cover a period of 20 or more years. At the same time, Sechin estimates that the U.S will have to spend about $17 trillion to maintain existing levels of oil production until 2040.

The global crisis is certainly impacted by the anti-Russia sanctions, which are now causing a major restructuring of existing supply chains. U.S. energy companies are not always willing to fulfill their energy supply obligations when they step into European markets where Russia has held a leading position until recently.

U.S. shale gas and shale oil producers have warned that they will not be able to increase supplies to Europe this winter. Furthermore, American capacity to extract these resources is already stretched to the limit. “It’s not like the U.S. can pump a bunch more…. There isn’t any bailout for Europe coming from U.S. producers. Not on the oil side, not on the gas side,” Wil VanLoh, head of the private equity group Quantum Energy Partners, told the Financial Times.

To make things worse, Biden wants to strip today’s top oil producers of their profits. In fact, the U.S. produced 711 million tons of oil last year, while Russia produced 524 million tons. The International Energy Agency predicts that global oil demand in 2023 will amount to 101.3 million barrels per day, while production will reach only 100.6 mb/d. Moreover, the IEA predicts a demand of 106.6 mb/d by 2025. How can this be achieved if oil companies are deprived of the opportunity to invest and forced to reduce prices at a crucial time when the cost of building new infrastructure is skyrocketing? It comes as no surprise that the White House, among other things, is trying to break the usual pattern of free market mechanisms by imposing price caps.

However, the White House should really ask itself whether it has any insight into this crisis and whether it fully realizes the outcome of what it is doing. On cold winter evenings, will Europe remember how stable and cheap the oil and natural gas supplies from Russia were? Today major oil and natural gas producers are extremely alarmed. They argue that Washington’s actions are threatening the fossil fuel industry, which might lead to disastrous consequences. By underfunding the energy sector and imposing price caps, Biden won’t save himself; instead, he will only increase the gap between supply and demand, which will lead to rising prices, production stoppages and global recession.

The author is an expert at the Intersectoral Expert and Analytical Center of Russia’s Union of Oil & Gas Producers and Tekface Project manager.

**Translator’s note: The Valdai Discussion Club is a Moscow-based think tank and discussion forum, established in 2004.