What Joe Biden’s policies on climate change and Iran mean for oil producers around the world

Once the US relinquishes its role as a major competitor in oil and gas markets, the market share battles of the first quarter of 2020 will be just a bad memory
Meanwhile, the spectre of Iranian hegemony in the Gulf will concentrate the minds of moderate Sunni Gulf rulers and could drive further alignment with Israel

Tilak K. Doshi

Published: 10:30pm, 27 Jan 2021

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Any hope that US President Joe Biden would tack back to the centre on energy policy and seek an orderly, long-term transition away from oil and gas evaporated after the slew of executive orders issued on his first day after taking the oath of office.

The United States rejoined the Paris climate agreement and revoked the permit for the Keystone XL pipeline, which is capable of moving 830,000 barrels of heavy crude per day from the Alberta oil sands to the US Gulf coast refineries.

Biden also imposed an immediate 60-day freeze on new leases and administrative permitting on federal lands, which account for more than a fifth of US oil and a tenth of natural gas.

The suspension is part of a larger review by the Department of Interior, which also effectively freezes for 60 days all administrative approvals on easements, rights of way, environmental reviews and resource development plans on all US land and waters.

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Biden’s first executive orders provide an early signal of his administration’s priorities. The climate emergency will outweigh all else, be it at the cost of many US jobs, hundreds of millions of dollars of lost royalties for state coffers in New Mexico, Colorado, Utah and Wyoming – all with significant shares of their oil and gas production on federal land – or the loss of billions more for Canadian producers in Alberta who will have to ship their crude by expensive and riskier rail and truck routes at steep discounts.

Internationally, no region will be more affected by Biden’s first executive orders than the Persian Gulf – specifically its oil producers.

Existing US production is not immediately affected, and there will be serious challenges to the Biden administration’s aims to institutionalise these temporary freezes into permanent shutdowns on new investments in US fossil fuel production.

Nevertheless, Biden’s early actions seem designed to fulfil the dreams of Saudi, Russian and many other state oil and gas company planners.

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By constraining US oil and gas production, Biden’s “whole of government” push for renewable energy and climate change priorities will help achieve the long-sought market share objectives of Russia, Saudi Arabia and other large oil and gas producers. It will achieve results that Saudi policy since 2015 has failed to attain by engaging in an all-out price war against the US fracking industry.

Once the US relinquishes its role as a major competitor in global oil and gas markets under the expected federal regulations and litigation by the environmental NGO allies of the Democratic Party, the market share battles between Saudi Arabia, its Gulf allies and Russia of the first quarter of 2020 will be just a bad memory.

However, Saudi Arabia and its allies among the Persian Gulf producers will have to contend with another priority of the Biden administration – to rehabilitate former president Barack Obama’s 2015 Iranian nuclear agreement legacy.

US Secretary of State Antony Blinken has said that if Iran were to come back into compliance, the US would as well. He views the Iranian ballistic missile programme, which was not part of the 2015 agreement, as a separate issue which would be dealt with eventually but “we’re a long away from there”.

Tehran’s demand in return for compliance is for the US to remove the “maximum pressure” sanctions of the Trump administration.

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The return of nearly 2 million barrels per day of Iranian crude oil to global markets would effectively end the Opec-plus group’s ability to manage collective agreements for supply cuts to support oil prices.

The Persian Gulf producers face more than reduced oil revenues while trying to recover from the steep recessions and falls in the oil price during the Covid-19 pandemic.

Iran’s renewed capacity to finance its allies and proxy militias across Lebanon, Iraq, Syria, Yemen and elsewhere in the region from the resumption of oil revenues will present direct national security threats to the Gulf Arab states.

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The spectre of Iranian hegemony in the Gulf which emerged during the Obama administration will once again concentrate the minds of the moderate Sunni Gulf rulers during the Biden administration.

In the most significant breakthrough in Middle East diplomacy in more than four decades, the United Arab Emirates agreed to establish full relations with Israel in mid-August, followed by Bahrain’s announcement of a similar agreement less than a month later.

These were the first agreements with Israel to be signed by Arab League members since the peace accords signed by Egypt in 1979 and Jordan in 1994.

06:04

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Sudan signed its normalisation accord with Israel in October, and Morocco became the latest country in the region to sign a similar agreement in December.

The hitherto unquestioned presumption of the regional order – that Arab states would never normalise relations with Israel without a resolution of the Israel-Palestine conflict – was jettisoned in a strategic realignment of the Arab Gulf states against Iran.

By aligning with Israel, the only proximate actor willing and able to challenge Iranian – and increasingly Turkish – ambitions for regional hegemony, the Abraham Accords have strengthened the Gulf Arab strategic posture in the region.

The accords, brokered by the Trump administration, were no doubt executed with a view to hedge the Arab Gulf states’ security dependence on the US with presidential elections around the corner.

Saudi Arabia is expected to adopt a more gradual approach towards normalising relations with Israel as it vies with Iran as the region’s “true defender” of the Palestinian cause. Yet, in the fraught times of Biden’s presidency, the kingdom might well hasten its own accord with Israel.

Tilak K. Doshi is a visiting senior research fellow at the Middle East Institute, National University of Singapore

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