If Democrats win the White House and US Senate in the November elections, US-Saudi relations would likely fray, creating reverberations across the global oil market, Washington-based energy analysts predict.
Receive daily email alerts, subscriber notes & personalize your experience.Register Now
The Democratic Party's priorities of climate action, ending US support for the war in Yemen and holding Saudi Arabia accountable for the killing of journalist Jamal Kashoggi will make it difficult for a Biden administration to appear anything but tough with Riyadh, despite longstanding ties between the two top oil producers, analysts said.
A Biden White House "standing behind the Democrats on this means a reckoning is coming," said Kevin Book, managing director of ClearView Energy Partners. "That could take a lot of forms."
Additional coverage: 2020 US Elections
Former Vice President Joe Biden, who is running ahead of President Donald Trump in the latest polls, promised Oct. 2 to "reassess our relationship with the Kingdom, end US support for Saudi Arabia's war in Yemen, and make sure America does not check its values at the door to sell arms or buy oil."
Book predicts a weakening of US-Saudi ties could lead to two major oil market outcomes: A return of Saudi Arabia's strategy of defending market share if OPEC+ supply coordination crumbles, and a strengthening of Saudi ties with China, a growing destination for its crude.
"The risk for the oil market is that the Saudis look at the loss of the US ally as a reason to secure market share today and ask questions tomorrow," Book said. "That, obviously, gets easier to do if there's no military sales and military cooperation carrot available."
Book said that would create enormous price pressures during the pandemic recovery.
"It's not a war anyone wins right away, it's a war of attrition," he added. "The tightness comes back when supply leaves the market for good; when bankruptcy, consolidation and rationalization tighten supply everywhere else."
Scott Modell, managing director of Rapidan Energy Group, said a Saudi reset under Biden would also "mark the end of the White House going to bat for US shale at OPEC+ and restraining a Democratic Congress when it comes to anti-Saudi legislation."
Trump pressured OPEC+ leaders Saudi Arabia and Russia several times during his first term to either increase supply to ease pump prices for US drivers or to constrict supply, as he did in March when the Saudi-Russian oil price war was hammering US oil producers.
That White House capital will likely disappear under a Biden administration, agreed David Goldwyn, president of Goldwyn Global Strategies and formerly the State Department's top energy diplomat under the Obama administration.
"I find it unimaginable that a Biden administration would be intervening when global prices are low, pleading with Saudi Arabia to please restrict supply," Goldwyn said.
"If the world suffered a supply shock and members of OPEC were sitting on spare capacity in order to extort exorbitant rents, it will no longer be the United States first in line to encourage them to release that spare capacity," he added. "Saudi's reliance on Asian markets and the potential of the US to increase production on private lands, if necessary, would be adequate discipline."
Goldwyn said the US-Saudi relationship need not be antagonistic, even with these shifts by a Biden White House. He said both countries have an interest in decarbonizing the Saudi economy and moving away from burning oil for electricity.
"US and Saudi energy officials will spend more time talking about renewable energy, battery storage, carbon sequestration and hydrogen than the oil market," Goldwyn said.
Trump defined relationship
A former Trump administration energy policy adviser said the US-Saudi relationship in the past four years was defined by the White House, not necessarily by Republicans in Congress.
"The wildcard here is that because we're obviously less dependent on imported oil from the Middle East, and that trend is going to continue, I do think you have some foreign policy folks out there in Republican circles even questioning why are we bolstering the Saudi regime," said the adviser, who asked not to be named. "Why are we going out of our way to do that?"
The former Trump adviser agreed that a Saudi drift toward China is likely "if the US becomes an unreliable partner," and he does not see a Biden White House pressuring Saudi Arabia to pump more oil if prices spike someday.
"The left wing of the party is pushing really hard to make sure that administration is going to be staffed with policy folks that are aligned with the anti-fossil-fuel agenda," he said.