Moderating Oil Prices: A Silver Bullet
Oil prices, specifically gasoline and heating oil prices have become the number one political headache for President Biden and the Democratic Party. Tapping into the U.S. Strategic Petroleum Reserve and asking a few other countries to open up their reserves will have a negligible effect on prices and even then it will take time for consumers to see lower prices.
But Biden has an option that would help moderate prices and give him the critical diplomatic opening that he needs to restore the nuclear deal (JCPOA) with Iran. Please let me elaborate.
The sanctions on Iran include the sale of its oil. The U.S. does not import Iranian oil and the U.S. threatens sanctions on any country that does. This has limited Iranian oil exports. Iran has the capacity to produce and export more oil very quickly. And with time and more investment in Iran, Iran could increase its capacity even further. While this is one reality, Biden has tried to persuade Iran to return to the JCPOA agreement even though Trump abrogated the agreement signed by the U.S. and ratified by the UN Security Council. Iran is willing to return to the agreement if the U.S. compensates Iran for economic losses resulting from U.S. abrogation of the agreement, lifts all sanctions and provides some reasonable guarantee that the U.S. will not unilaterally rescind the agreement again. Biden has been unwilling to meet Iran’s demands and negotiations are unlikely to succeed. Even if Biden wanted to accommodate Iran, he cannot afford the political fallout as Iran has been so vilified in the U.S.
Now given rising oil and gasoline prices and its negative fallout, he has the ideal opening. He could readily justify rescinding sanctions on Iranian oil exports as a goodwill gesture to get Iran back to serious negotiations and moderate oil and gasoline prices, which would be highly popular.
But Biden could do even more. The fact that Saudi Arabia, Kuwait and the UAE (Abu Dhabi) have rebuffed his request to increase their oil output is astounding. These countries are totally dependent on U.S. military, intelligence and diplomatic support and if their rulers ever thought the U.S. was contemplating pulling its support they would shake in their robes. This is so well-known that it is indisputable. Biden simply has to be tougher in private with Saudi Arabia (MBS), the UAE (MBZ) and Kuwait (the Emir), telling them to produce more oil and now!