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The Biden administration isn’t ‘looking to accomplish a great deal’ in Saudi Arabia, expert says

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Eurasia Group Managing Director, Energy, Climate & Resources Raad Alkadiri joins Yahoo Finance Live to discuss expectations for President Biden's visit to Saudi Arabia and the outlook for energy outcomes.

Video Transcript

[MUSIC PLAYING]

AKIKO FUJITA: Welcome back to Yahoo Finance Live. You are looking at live images coming out of Jeddah, Saudi Arabia as President Biden arrives in Saudi Arabia for what is considered a bit of a controversial trip here. The President certainly has some key meetings there. And we have been watching oil prices move in tandem there, moving higher today on the expectation that there's not going to be a whole lot that comes in terms of increasing capacity on the back of those meetings.

Let's bring in Raad Alkadiri. He is managing director of energy climate resources at Eurasia Group. Certainly, a lot of contention here in terms of the president going out to meet with the Crown Prince Mohammed bin Salman in Saudi Arabia. On the energy issue, specifically, what is the administration looking to accomplish here?

RAAD ALKADIRI: I'm not sure the administration is looking to accomplish a great deal. I think they have tried to downplay over the last few weeks since the visit was announced what they think they can achieve. Obviously, there's been pressure from Washington over the past few weeks and months to try and get the Saudis to release more oil to bring crude prices down, and therefore, to try and bring gasoline prices domestically in the US down.

I think there's a realization at this moment in time that the Saudis don't have a silver bullet. And in fact, there is really no silver bullet for gasoline prices in the US in the short-term. So this will end up being about, I think, bigger strategic issues as opposed to, specifically, energy.

BRIAN CHEUNG: Hey, it's Brian Cheung here. So is there an expectation that there should be any announcement out of this meeting? I mean, it seems like they're spending a lot of political capital to go about this trip in the first place. We know that the Biden administration has been trying to market that cap that they want to put on Russian oil. But is that something you think the Saudis will be willing to bite on or even engage with the US in a public statement after this meeting?

RAAD ALKADIRI: I don't think so. I think the Saudis will continue to sort of give the message that they've given over the years, which is that they are a reliable supplier. If the market is short of crude, then they will step in and supply it under emergency circumstances. That's why they keep their spare capacity, which is at very low levels right now, which is one of the reasons I think they will be very reluctant to bring more oil on, when they feel that sort of balances don't necessarily justify or call for more oil.

So I think what you'll see is the Saudis reinforcing that they have been reliable and responsible managers of the market, that they have stepped in the past, will step in, in the future in the event of some form of emergency. But in the meantime, we'll watch things closely and cooperate with the rest of the world.

Certainly, nothing, I think, to expect in terms of statements against Russia. Certainly, no commitment to an oil price cap, which I think the Saudis fear could be extended beyond Russia at some point in the future. And certainly no sort of no message in terms of sizable new volumes of crude coming onto the market.

AKIKO FUJITA: I mean, that seems to beg the question, what would be considered a successful outcome coming out of this trip? To Brian's point, there's a lot of political capital on the line here. Certainly, the president in the past has said this is a country he wants to make a pariah. And yet, here he is, paying a visit.

RAAD ALKADIRI: Look, I think this is about a much bigger geopolitical rethink in terms of Washington. I think there's been a debate within this administration between sort of those who have emphasized values and those who have emphasized more realpolitik interests. And what you're seeing is energy having brought this to the forefront and energy having convinced Biden that he needs to make the trip.

But this is about Middle East stability. It's about the war in Yemen. It's about Israel. It's about Iran in particular. And I think a sense that the US is asking the Middle East to manage its own affairs. The US is looking to pivot strategically to China and focus on that as a major strategic competitor. And part of that process has to be that you engage with large regional powers in areas of the world that, in the past, have been strategically important and will remain strategically important in terms of energy market.

So I think there are bigger issues at play here. Energy may have brought this to Biden's desk and convinced him to go. But I don't think energy is where you're going to get some of the big outcomes in terms of this trip. I think that's going to be more in terms of the long-term strategic balance and long-term relationship between the United States and its various Middle East allies.

BRIAN CHEUNG: You join us from Washington, DC, and I understand you also watch climate. So I guess, what do you see the significance in terms of a Democratic president who campaigned largely on trying to pursue some of these climate efforts to try to decarbonize here in the United States, reduce the reliance on fossil fuels, and then going to Saudi Arabia and asking some of the major oil suppliers to help us out and getting more energy out of the ground?

RAAD ALKADIRI: I think it's a reality of energy transitions. I don't think a commitment to climate and a commitment to energy transitions in the longer term and a short-term effort to balance markets and ensure that consumers and economies aren't paying the price for that transition is necessarily out of whack. Arguably, it's good politics.

You know, this-- an energy transition, I think, has always been seen as somehow a smooth path. You remove hydrocarbons. You introduce renewables. And hey, presto, you get an ideal result at the end of the day. I think the administration still values net zero goals. I still think it has a commitment to the environment, a commitment to climate-- addressing climate change.

But at the end of the day, it also has a commitment to managing the economy and managing and governing in the very short-term. That is going to be the challenge of energy transitions for the next 20 years. What we've seen over the last six, eight months, and arguably, what we've seen over the last couple of years, is that bumpiness. It's going to be a very jagged process and one that is going to require very acute political skills and is going to test governments far more, as the Biden administration is finding out.

AKIKO FUJITA: So let's talk about what you're seeing in terms of the supply picture, at least in oil, looking ahead. You're saying there's not a lot of spare capacity with OPEC. We're also going to see the release from the Strategic Petroleum Reserve drying up come October, and then still more Russian oil coming offline. So what does that mean in terms of where prices could go if we're already in a supply crunch, and yet, more can come offline?

RAAD ALKADIRI: Well, I think I would start by debating whether we're actually in a supply crunch. And I realize that sort of is counter narrative at this moment in time. The reality is that Russian exports have held up over the past four or five months. The supply shock that was anticipated, the 3 million barrels a day that the IEA talked about in late February, early March, hasn't materialized. If we look at the market through the second quarter, latest figure certainly from the IEA suggests that we had a stock build. And they're anticipating one into the third quarter and the fourth quarter. Arguably, this is a market.

And I think more generally, everybody has been focused on the threat of a supply shock and the risk of a supply shock, when, actually, what you're seeing is a demand shock and a demand shock to the downside. You've seen the impact of zero-COVID policies in China lead to a slowdown of demand there, anticipation maybe that for the first time since 1990, China's energy-- or China's oil demand isn't going to grow this year. It might actually fall. And you're seeing the impact of slowing demand in the US. You're seeing it in Europe and elsewhere.

So I think it goes back to that question of, does the world actually need a great deal more oil right now? And at a time when spare capacity is tight, I think that is the strategic decision that a country like Saudi Arabia has to make. Its strategic legitimacy, its credibility rests on being able to step in when there is an emergency supply situation. It's not going to want to squander that. And arguably, what we're seeing right now is a fear to the upside and a reality to the downside.

AKIKO FUJITA: Yeah, some important context there. Raad, it's good to talk to you today on this Friday. Raad Alkadiri, managing director of energy climate resources at Eurasia Group.