Ukraine War Pushes Biden Toward Venezuela, Iran and Saudi Arabia in Oil Hunt

The war in Ukraine has added urgency to the Biden administration’s search for new oil supplies, as it seeks to contain surging energy prices.

Sen. Jame Risch listens during a Senate Republican news conference in the US on March 9 to discuss the ongoing Iran nuclear talks and the United States' import of oil from Iran and Venezuela. Picture: Anna Moneymaker/Getty Images

The war in Ukraine has added urgency to the Biden administration’s months-long search for new oil supplies, as it seeks to contain surging energy prices through talks at home and diplomacy abroad with friends and foes alike.

The rush to fill gaps from Russia’s rapidly shrinking contribution to the global energy markets has led the White House to oil-rich nations in the Middle East, countries under U.S. sanctions and private-sector oil giants meeting this week in Houston. But the quest has been complicated by several factors, including President Biden’s vow to take a tougher line against Saudi Arabia over human-rights abuses, domestic political pressure and post-pandemic supply chain disruptions.

Republicans and some Democrats have criticized the outreach to adversaries such as Iran and Venezuela. And the Biden administration has faced conflict with oil advocates in the U.S. and Canada over whether North American companies are fully using existing capacity.

The upshot is a globe-spanning scramble for spare supply that has only accelerated after the Biden administration this week banned imported oil and other energy sources from Russia to punish the country for the onslaught in Ukraine.

“The White House has embarked on the oil equivalent of a scavenger hunt,” said Helima Croft, head of global commodity strategy at RBC Capital Markets. “Given the potential magnitude of the Russian losses, the White House will need something akin to a straight flush to pull it off.” The White House wouldn’t disclose how much oil it is seeking or describe progress of talks with other nations. U.S. officials also say their talks with countries like Venezuela and Saudi Arabia have often been largely focused not on oil but other geopolitical and security issues.

Officials also acknowledge a widespread need to bring more supply to the global market. At 4.3 million barrels a day, according to Rystad Energy -- more than 4% of all the world’s supply -- Russian exports to the West are so big that threats to cut them off have Wall Street firms starting to forecast worst-case scenarios of crude prices beyond $200 a barrel later this year.

Up-to-date numbers on Russian exports weren’t immediately available. In the last 48 hours crude has been in retreat from last week’s record gains, with the U.S. benchmark on Thursday down $2.79, or 2.6%, to $105.91 a barrel “The question for us all, I think, is, ‘What else can we do in this fight?’ We are on war footing,” Energy Secretary Jennifer Granholm said to a room full of energy company executives Wednesday at the CERAWeek by S&P Global conference in Houston. “We are in an emergency. And we have to responsibly increase short-term supply where we can right now to stabilize the market and to minimize harm to American families.” Mr. Biden is also facing calls from some Democrats to suspend the federal gasoline tax as the next move to counter soaring prices.

Administration leaders have been pushing to boost global oil production well before the crisis in Ukraine. Global prices had started rising sharply throughout Mr. Biden’s first year in office, which his aides saw as a threat to their party’s political prospects in the U.S. and to global stability. A rebounding economy was pushing demand past supply that had tanked during the pandemic.

Still, GOP and industry critics have blamed Mr. Biden’s advocacy for cleaner energy for helping to scare off jittery investors who are already sceptical of U.S. oil companies.

In August, the administration pressed the Organization of the Petroleum Exporting Countries to speed up production growth, saying planned increases were insufficient. But that demand was ignored and oil and gasoline prices continued to rise, compounding rising inflation that has become a liability for Mr. Biden and Democrats going into midterm elections this year.

A key ally to the U.S. for decades in limiting rising oil prices, Saudi Arabia has been cool to a stepped-up White House outreach. As a candidate, Mr. Biden pledged to make a pariah out of Saudi Arabia over human-rights abuses and the killing of journalist Jamal Khashoggi. The Saudis and OPEC in recent years have had a new deal with a group of other producers led by Russia, and the alliance so far has declined to go beyond the rising output it had already approved.

The U.S. has canvassed other oil producers in the Middle East and North Africa as well.

In a call earlier this week, U.S. officials asked Fathi Bashagha, Libya’s prime minister designate, if he would be able to guarantee steady oil supplies, according to Libyan government advisers. And along with Saudi Arabia, the U.S. has pressured the United Arab Emirates to increase production, with mixed results. The U.A.E. said Wednesday it would push OPEC to pump more oil, a departure from its previous position, and it already appeared to be exporting more crude than normal this week, according to Kpler, a Brussels-based commodity-markets intelligence firm.

The Biden administration also has its eye on Iran. If talks in Vienna to restore the 2015 nuclear accord finally reach a conclusion, Iran could re-enter international oil markets in the coming months. While U.S. sanctions on Iran would remain in effect, preventing direct purchases of Iranian oil, analysts see the completion of the agreement as one of the faster ways to get more crude on the market.

The negotiations, however, hit a new standstill this week after Moscow demanded guarantees from Washington and Europe that Western sanctions on Russia won’t prevent it from doing business with Iran if the 2015 deal is restored. U.S. and European officials say Russia’s request is unacceptable; they have ruled out offering Moscow a major carve-out from the Ukraine-related sanctions packages.

Most recently Biden administration officials surprised many Venezuelan opposition leaders by arriving in Caracas over the weekend for talks about lifting sanctions on the oil industry that have been in place since 2019 in return for a range of concessions. This week Venezuela released two imprisoned Americans.

The Biden administration’s decision to meet with Venezuelan President Nicolás Maduro is designed to separate Russia from its closest ally in South America, Venezuela, while creating an opening in that country for U.S. oil companies, many of which left in recent years, people familiar with the talks say.

The moves have come under criticism both at home and abroad. Some leaders from Washington’s closest ally, Canada, have angrily observed the Biden administration is looking to repressive regimes for more oil, when its democratic ally, Canada could step in. Also a concern for Canada’s industry: Venezuela produces a heavier grade of oil that could again be a direct competitor to the grades Canadian producers would like to send more of to the U.S. Gulf Coast.

“It’s replacing dictator oil with more dictator oil,” said Jason Kenney, premier of the Canadian province of Alberta, where most of Canada’s oil lies. Mr. Kenney is now pushing for the Biden administration to help revive the Keystone XL pipeline, an oil conduit that would have carried 830,000 barrels of Canadian oil a day to the Gulf Coast. Mr. Biden revoked a permit for the pipeline last year, on his first day in office, and TC Energy Corp. abandoned it a few months later.

“If Washington were to say that this is a matter of national urgency, I’m sure a way could be found,” said Mr. Kenney.

U.S. officials dispute Canadian claims about whether the pipeline would lead to increased Canadian output and how quickly it could arrive.

Canadian producers -- who are already pumping oil at record levels -- aren’t willing to pump more as global prices surge. They don’t want to make bigger investment commitments in reaction to a price surge that may be temporary, said Ben Brunnen, who works on fiscal and economic policy for the Canadian Association of Petroleum Producers, an industry group. The industry first needs to see more commitment to oil and gas production and export from the Canadian government, he said.

Meantime, environmental activists and some administration officials say the oil that Keystone XL would carry is some of the dirtiest in the world. The White House this week said that isn’t on the table.

The U.S. energy secretary, Ms. Granholm, met Tuesday in Houston with Canada’s Natural Resources Minister Jonathan Wilkinson to discuss global-energy security in the wake of the Ukraine conflict and their initiatives to address climate change, said a spokesman for Mr. Wilkinson.

As part of outreach efforts to the energy industry, Ms. Granholm and the rest of the U.S. contingent at the conference have also been meeting directly with several oil and gas producers. Ms. Granholm said in an interview that she is meeting with executives from BP PLC, Shell PLC and Chevron Corp. among others. And she used her speech at the conference Wednesday to strike a conciliatory tone with the industry.

“I am here to extend a hand for partnership,” she told a full conference room, “because we’re only going to be able to meet these challenges -- the challenges of oil and gas supply and the challenges of climate change -- by working together.” Her remarks came amid months of simmering tension with U.S. oil executives. They have said Mr. Biden could have more success boosting oil supply if he personally showed more support for domestic producers, signalling to sceptical investors it is safe to invest in their industry.

But analysts say the U.S. industry may no longer be a reliable source of rapid growth, whatever Mr. Biden does. Executives at the conference have given mixed forecasts on coming growth, cautioning of obstacles that continue to constrict supply, from thinning inventories to investors wary of overspending.