September 18, 2023 - 7:15am

Oil prices are on track to reach $100 a barrel this month for the first time in 2023, after surging by almost 30% since June. While prices remain lower than those seen in the wake of Russia’s invasion of Ukraine, it could end up being a key factor in which way the US elections swing next year.

Part of the reason for the higher oil prices is buoyant demand. Despite much of the world economy labouring under high interest rates and low growth, there appears to be sufficient consumer demand to keep oil markets tight. But a more significant cause is the joint decision by Saudi Arabia and Russia to try to push oil to $100 a barrel. 

Typically, American presidents facing re-election will leverage the US-Saudi relationship to drive down prices. Studies show that high petrol prices have significant effects on voting in the United States, especially in areas of the country where people are very dependent on car travel. So it should come as no surprise that US presidents try to influence Riyadh to bring down prices, even if only for a short period. During the election in November 2012, oil prices fell to around $86 a barrel — a far cry from the $103 a barrel in April that year. Two weeks after the 2018 midterm elections, then-President Trump wrote a tweet thanking the Saudis for driving down the oil price. 

But under the Biden administration, relations between the United States and Saudi Arabia have reached an all-time low, which has been further exacerbated by Mohammed bin Salman’s decision to join the Brics+ alliance this summer. Add to that the prospect of a looming global recession, and it starts to make sense why Opec would want to firm up oil prices before they crash.

Yet it is hard not to think that there is also a political component to the Saudi-Russian decision, too. Vladimir Putin clearly sees more of an ally in Trump than the current President. Whether the Republican could end the Russia-Ukraine war “within 24 hours” (as he has claimed) is questionable, but it seems likely that the Russians would prefer a president who is open to negotiation over one who is completely closed to it.

The potential Saudi political motives are harder to discern, but it is undeniable that, under the Trump administration, relations were much better. While it is possible that the Saudis would prefer to have him back in office, Riyadh’s decision to join Brics+ suggests the kingdom could be moving away from Washington altogether. Perhaps they want to try to play both sides, and think that another Trump presidency would allow them to do so.

Whatever the motivations, however, there is little doubt that these machinations will have a large impact on the forthcoming election. And with America’s strategic petroleum reserve at its lowest level since 1983, it seems that they do not have many cards left to play. Recent inflation data also shows an uptick due to rising oil prices, raising the prospect of even higher interest rates before the election. President Biden must be kicking himself for allowing US-Saudi relations to deteriorate so dramatically.

Philip Pilkington is a macroeconomist and investment professional, and the author of The Reformation in Economics