Strategy Note /

Biden's Middle East trip likely won't push oil prices down

  • US President Biden visits Israel, occupied West Bank and Saudi Arabia on 13-16 July

  • Saudi-UAE oil output and the Iran Nuclear Deal are the agenda items of interest to investors

  • The trip is likely futile: UAE-Saudi maximising oil price, Israel has caretaker government, US mid-term elections loom

Biden's Middle East trip likely won't push oil prices down
Hasnain Malik
Hasnain Malik

Strategy & Head of Equity Research

Tellimer Research
5 July 2022
Published byTellimer Research

As many start off their summer holidays, US President Biden will head to the Middle East on 13-16 July to visit Israel, the occupied West Bank and Saudi Arabia.

The time in 2019 when presidential candidate Biden pledged to make Saudi Arabia a "pariah" has long passed. A number of factors that have resulted in the reality of aligned sovereign interests (as opposed to supposed aligned values) have put paid to that:

  • Much higher oil prices and inflation;

  • Lack of progress in reviving the Iran Nuclear Deal;

  • The outbreak of the Russia-Ukraine war; and

  • Continuing friction with China.

The prospects of the trip resulting in a significant drop in oil prices are low because that requires at least one of two developments.

  1. Persuading Saudi Arabia and the UAE to utilise spare oil capacity, which they may not be motivated to do so given that maximising oil prices is in their interest, and, which they may not be able to run hot for an extended period in any event.

  2. Persuading Israel to support the compromises needed to revive the Nuclear Deal and, by implication, Iran oil exports, eg removing the Revolutionary Guard Corps from the US Foreign Terrorist Organization list, particularly when there is another Knesset election in November and the Israeli government is a caretaker one.

Spare oil capacity mainly in Iran, Saudi, and UAE, excluding Russia (embargo), US and Canada (environmental)

Israel's fragmented Knesset and weak governments

Iran Nuclear Deal not yet revived during Biden's term

In addition to unreceptive counterparties, Biden's credibility heading into the trip is arguably low.

  • Biden's approval rating in the US is low and the Democrats face the prospect of losing their slim majority in the US House of Representatives after the November mid-term Congressional elections.

  • Biden's foreign policy stance on Saudi Arabia has reversed so sharply that it is not clear if his words carry as much force as they might have done when he first took office.

  • Long-term US credibility in the Middle East region has been damaged by events under both Democrat and Republican presidents – the withdrawal of support for long-standing US geopolitical partners in the region such as Egypt's Hosni Mubarak under Obama in 2011, the unilateral withdrawal from the original Iran Nuclear Deal under Trump in 2018, and the chaotic final evacuation from Afghanistan under Biden in 2021.

US opinion polls make for grim reading for Biden

Related reading

OPEC+ decision suits Saudi, US, Russia but no oil price relief for importers, June 2022

Israel's fragile new government, June 2021

Iran Nuclear Deal: Are we there yet and will it even be worth it?, Feb 2022

Human rights presents a dilemma for ESG investors and US foreign policy, Feb 2021

ESG: Biden's Summit for Democracy and the challenge for ethical EM investors, Nov 2021