Global oil diplomacy 2024: Abundant crude supplies offer Biden strategic leverage amidst potential election-year sanctions

New Delhi [India], December 30 : In the complex landscape of global oil supplies, the Biden administration faces strategic decisions regarding potential oil-related sanctions on Russia, Iran, and Venezuela in 2024.
As per S&P Global, while US gasoline prices hold significance in an election year, experts suggest that increased global oil supplies, driven in part by enhanced US oil production, provide the administration with some flexibility in its approach to geopolitical challenges.
Rachel Ziemba, an adjunct fellow at the Center for a New American Security, notes that the surge in global oil supplies, coupled with favourable market conditions, eases the risk associated with tighter sanctions.
Ziemba said, "Increased US oil production has boosted global supplies, which has reduced -- but not eliminated -- the risk from tighter sanctions. If easy oil conditions persist, in line with sluggish growth, I do think they may make it easier to continue with enforcement".
The reduction in oil prices and concerns over macro risks empower Washington to navigate potential sanctions-related disruptions without triggering substantial price spikes.
As the year concludes, New York Mercantile Exchange (NYMEX) West Texas Intermediate (WTI) crude prices show a 5 per cent decrease from the previous year, signalling a global supply surplus in early 2024.
Non-OPEC (Organization of the Petroleum Exporting Countries) supply growth is anticipated to outpace slowing global demand growth, leading to an implied liquids surplus of 2.2 million barrels per day in the first quarter, even with OPEC+ voluntary production cuts.
Global inventories have risen, and projections suggest accelerated builds in early 2024, peaking around May with an additional 150 million barrels before a resumption of draws.
This burgeoning supply surplus has contributed to a deep contango structure in crude forward curves, emphasizing the current market conditions.
Despite the focus on sanctions, other factors such as regional conflicts, OPEC+ decisions, US and Chinese demand, and disruptions in major shipping routes are expected to play a more crucial role in determining global oil supplies.
Brenda Shaffer, an energy expert at the US Naval Postgraduate School, highlights the impact of disruptions in major waterways, affecting shipping and insurance prices and adding a new premium to oil and LNG prices.
Brenda Shaffer, an energy expert at the US Naval Postgraduate School, said, "Disruptions in the world's major waterways are affecting shipping prices and insurance prices and have built in a new premium in oil and LNG pricesAddressing waterway security more directly could add jitters to the global oil price".
"With this in the background and in an election year, it is not likely that the Biden administration will enforce sanctions and undertake policies that will take oil barrels off the market," she said.
While some experts foresee leeway for Washington on sanctions, others caution that risks from these factors may limit the administration's options.
The ongoing disruptions in major waterways, coupled with the backdrop of an election year, may deter the Biden administration from implementing sanctions that could potentially impact oil barrels in the market.
Fernando Ferreira, director of geopolitical risk service at Rapidan Energy Group, emphasizes that Washington's immediate oil sanctions focus is on Russia, anticipating a significant ramp-up in enforcement in the coming year.
Fernando Ferreira, director of geopolitical risk service at Rapidan Energy Group said, "Oil prices have come down quite a bit and most analysts seem to be concerned with further macro risks, so Washington can risk some sanctions-related disruptions without worrying too much about a price spike. Current market conditions give the administration more wiggle room to act."
However, experts suggest that enforcing sanctions on Iran may not see significant changes unless there is an escalation in the Gaza/Israel conflict.
In Venezuela, where the US eased oil and mining sanctions for six months in exchange for progress toward fair elections in 2024, the Biden administration is expected to defer to the Venezuelan opposition's assessment.
The flexibility in negotiations is essential, with a cautious approach to reimposing sanctions that could undermine humanitarian issues.
As the geopolitical landscape evolves, the Biden administration navigates the delicate balance between leveraging oil-related sanctions and ensuring stable global oil supplies in a year marked by elections and complex international dynamics.