US Holds Back on Saudi Moves as Tensions Ease

US-Saudi tensions have eased in the two months since a public war of words between Washington and Riyadh that was triggered by the Opec-plus decision to cut a notional 2 million barrels per day from global oil supply.

Despite threats of "consequences" made by the Biden administration during the run-up to US midterm elections in early November, no concrete actions have materialized.

One of the top potential measures, passage of the "Nopec" antitrust legislation, has not advanced, after quietly failing to be included in a targeted bill this month.

While top-level relations are expected to remain cool — particularly between US President Joe Biden and Saudi Crown Prince Mohammed bin Salman — threats of US retaliation for Opec-plus supply cuts have now faded.

The easing of tensions has been helped by the retreat of oil prices and the completion of a US election season, in which energy costs are always a sensitive political topic.

It also helps that oil supplies have held up better than many anticipated.

Actual Opec-plus production cuts were just 320,000 b/d in November, according to Energy Intelligence estimates — a far cry from the headline 2 million b/d announcement and also much lower than the expected 1 million b/d.

All eyes are now on Russian supply, after a G7 price cap and an EU ban on seaborne crude imports that took effect on Dec. 5.

In October, when Opec-plus made its decision, the Biden administration was still talking to other G7 nations about details of the price cap, which aims to limit Moscow's oil revenues while keeping supplies of Russian oil flowing. The Opec-plus decision was seen in Washington as undermining that effort.

Energy Intelligence takes a look below at some of the pressure points in the US-Saudi relationship, and where things stand today.

Strategic Stock Sales on Hold: Washington's record releases of oil from the Strategic Petroleum Reserve were a source of irritation for Opec-plus, which viewed them as US interference with its efforts to manage the oil market. A key consideration for Opec-plus members was whether the US would continue to release stocks after the Nov. 8 election beyond the 180 million barrels announced in March. It has not.

Rather, Washington has moved in the opposite direction. US officials always said they planned to restock the reserve once markets calmed down. The last few weeks have seen them take such steps.

In October, the Biden administration announced that it would buy back oil when prices were in a range of $67-$72 for West Texas Intermediate crude. In December, the US Energy Department announced a test purchase of 3 million bbl under a new fixed-price system. Lawmakers also wiped some 140 million bbl of congressionally mandated, revenue-generating sales off the books, offsetting this year's emergency sales. That translates to fewer required sales going forward.

No Progress for Nopec: The public spat gave fresh momentum to decades-old legislation that could expose Opec and its allies to US antitrust laws, known as Nopec — the No Oil Producing and Exporting Cartels Act. Long-time sponsor Senator Chuck Grassley (Republican-Iowa) pledged to attempt to attach it to a must-pass defense spending bill. But the bipartisan effort did not pan out, and proponents would need to introduce the legislation again once a new session of Congress starts in January.

The Nopec bill, which has been around for more than 20 years, would remove the sovereign immunity typically recognized by US courts for state-owned oil companies, allowing the US Justice Department to pursue legal action against states and state-backed companies that act to curb or restrain trade, or set prices for oil, gas or products.

Past administrations have opposed the measure, concerned that it could create diplomatic problems with Riyadh and its Opec-plus allies, and prompt them to respond by cutting their investment in the US.

Arms Sales Ambiguity: In October, US lawmakers urged the Biden administration to suspend arms sales and security cooperation with Riyadh, with the powerful chair of the Senate Foreign Relations Committee Bob Menendez (Democrat-New Jersey) calling for the administration to "freeze all aspects" of the relationship.

The Biden administration has not approved new weapons sales to Saudi Arabia since the dust-up. But this does not necessarily indicate any suspension beyond the administration's existing reluctance to approve "offensive" weapons sales to Riyadh.

Menendez's office did not respond to questions as to whether the senator still stands by that position or has changed it. Regardless, lawmakers could have a difficult time constraining arms sales if the administration is keen to move ahead: A congressional bid to halt sales to Riyadh during the Trump administration failed after officials made exceptions for national security.