The price of oil is meandering upward. A casual review of forecasts by financial organizations shows a general expectation that it will reach $90 a barrel by the end of the year. A review of the news suggests a certain stability in, and among, oil-producing countries and their customers.
But, a closer look reveals a precarious oil market increasingly imperiled by Biden Administration policies:
- Russia continues its war with Ukraine and exports oil, despite Biden Administration and European sanctions. India and China buy most of Russia’s exports.
- Iran continues to produce over three million barrels per day (b/d), because the Biden Administration does not enforce its sanctions against Iran. Iran makes around $3 billion per month from exports, with which it funds and provides weapons for Hezbollah, Hamas, and Houthis to attack Israel and shoot at ships in the Red Sea and Gulf of Aden, one of the world’s busiest commercial waterways. It also provides weapons to Russia. China’s economy depends on trade, so they object to some of this disruption. Chinese and Russian ships do not get shot at.
- Russian navy ships have entered the Red Sea to join the witch’s brew of other navies there, including the U.S., trying to protect shipping from Houthi missiles. Much of the normal trade on this route is diverted to a longer route around Africa, thus increasing costs and prices of the products.
- China’s only major overseas military base is at Djibouti at the mouth of the Red Sea.
- With navies busy a little further north, Somali pirates have increased activity to protect their market share.
- Sudan’s civil war continues and has closed the pipeline from South Sudan to Port Suden on the Red Sea, from which all South Sudan’s production is exported. A few hundred thousand barrels per day are, therefore, off the market.
- Libya continues its civil war with opposing governments in the east and west, each exporting the oil production from its area.
- Venezuelan president Maduro is preparing for his next election by jailing and executing opposition candidates or taking their names off ballots. The Biden Administration noted how well this works and is attempting to implement the same methods in the U.S. It also noted how the citizens of Venezuela and other South and Central American countries will vote as they are directed and is importing millions of them to do the same in the U.S.
- Maduro is also announcing preparations to invade his next-door neighbor, Guyana, a small country with large new oil discoveries and production by an Exxon-led consortium.
- After the Biden Administration stopped construction on a pipeline to export oil from Canada to the U.S., the Canadians built a pipeline to their Pacific Coast. The pipeline is being filled and will soon begin operation. China is expected to buy most of the exported oil. This will be the first significant export of Canadian oil other than to the U.S. The price of Canadian oil to the U.S. will now be determined by China, as a result.
- China continues to threaten Taiwan and countries bordering the South China Sea.
- The Biden Administration effectively reduced the U.S. military budget. The U.S. military will have to fight with low supplies of outdated weapons.
- Coordinated terror attacks within the U.S. are a real threat because of the open border.
- The Biden Administration did not refill the U.S. Strategic Petroleum Reserve, which it reduced significantly to influence the midterm elections in 2022.
- The Biden Administration continues its program of enormous deficit spending for non-productive purposes, thus fueling inflation and maintaining interest rates as high or higher than they are now.
The oil markets seem to consider all to be the status quo in the oil markets and the defining state of tranquility among producers. But, even a short review of the situation gives one a sense of instability and reason to believe that some event will upset a tenuous market equilibrium. What and when it happens is unknown. It is unlikely prices will go down, as a result; they will probably increase suddenly and significantly.
The U.S. is the world’s largest oil and gas producer. With the leverage this provides, now is the time the U.S. should be establishing long-term supply and market relationships with other nearby producers. The Biden Administration is conceding these relationships to China.
In the meantime, the Biden Administration increases instability in American society, politics, and the economy. Their fecklessness with respect to oil market instability may give them exactly what they do not want just before the election: Higher gasoline prices.