Even though in February 2020, the United States registered a record of production of more than 13 million barrels of oil per day, the outbreak of the Covid-19 and its implications for a reduction in demand for oil resulted in a reduction in the oil production while it was expected that the production of the US shell oil, according to estimates, would grow by more than 40 percent by 2025 and reach to 17 million barrels per day. The reasons behind such a reduction in the production of oil aside, it is important to analyze its international implications especially for the OPEC Plus and the future of the world’s oil markets.
After the United States President Donald Trump withdrew from the nuclear deal, the US government made gradual efforts to replace the Iranian and Venezuelan oil with its own in the global markets. High tensions in the oil-rich regions of the world prevented a sharp reduction in oil prices and the Shell oil production remained cost-effective. For this reason, the United States managed to gradually capture the Iranian share of oil swap markets as well as the Iranian oil sale to China. Trump even threatened to impose customs tariffs on Saudi goods to put pressure on Riyadh to reach an agreement with Russia to reduce the production of oil so that oil prices do not continue to fall. High oil prices had two benefits for the US: more pressure on China and India, and more financial profits from US shale to produce more cost-effective oil.
However, the Covid-19 outbreak crisis changed the situation on the ground, forcing the shale oil to be under-produced. This ultimately resulted in less profits to a level the shale even raised the issue of selling its foreign assets to compensate the loss. China is a potential buyer of the assets and subsidiaries owned by the Shell inside the United States. This may happen if the shale oil continues to be under-produced. On one hand, China’s economic recovery after the outbreak of coronavirus began sooner than other countries. On the other hand, China is in dire and strategic need for oil in order to advance its economy and maintain the present economic growth rate in line with strengthening its dominance over the global markets.
Under the circumstances in which the Trump administration is transiting power to the team of the President-elect of the United States which is expected to adopt an approach different than the Trump team in the global trade war and international relations, China is gaining a proper opportunity. The less the global price of oil, the less the value of oil fields in the daily production of oil. And if the price of oil does not increase in winter, China’s chances would turn into a golden opportunity.
This oil chess would be more complicated considering the probable change in the foreign relations of the United States after Trump. It appears that Biden’s approach to energy would be closer to Obama’s and would be inclined to new energies. The return of the United States to the Paris Climate Change Agreement could signal Biden’s determination to move towards the use of clear and green energies; however, the direct impact of the reduction in the US oil production would be on the OPEC Plus countries especially Iran. If Biden chooses to return to the nuclear deal, then the landscape of the supply in the global oil markets would change according to the expectation that Iran and even Venezuela oil would make their way once again to global markets. If this happens, oil prices are expected to decline and the US shell would find no financial benefit in producing oil. Mohammad bin Salman’s refusal to get closer to Israel demonstrated that Saudi Arabia expects a remarkable change in the US foreign relations in the post-Trump era and is waiting for the ultimate transition of power to the Biden’s administration to adjust its approaches and policies. Such probable changes in approaches and policies would mean more chances for Iran to regain its OPEC share in oil production after the probable lifting of Trump sanctions by Biden. Notwithstanding, there is another factor which should be taken into consideration in this chess play: Russia. There is new opportunity for Russia which can hamper or slow the trend of Iran’s return to the global oil market. Additionally, the speed and quality of the distribution of the coronavirus vaccine and global access to vaccination expected by the World Health Organization are other determining factors as the probable time of the rehabilitation of countries and their return to normalcy would lead to an increase in the demand for crude oil, resulting in an increase in oil prices and enough financial incentives for the re-production of the shale oil. Therefore, under such complex situation, the time periods concerning the change in the foreign policy trends of the United States and the return to normalcy after the global vaccination against Covid-19 will be determining in the probable international implications of the reduction in the production of oil by the US shale.