October 12, 2022 - 10:30am
For decades, the U.S. had a good working relationship with Saudi Arabia. The latter supplied the former with fossil fuels. The former supplied the latter with weapons, technology, and experts. But the longstanding ties between the two countries are beginning to unravel. This time, it looks like a genuine divorce might be in the offing.
Joe Biden and various Congressional Democrats have reacted angrily to OPEC+ decision to reduce crude output by 2 million barrels a day next month, with the President suggesting that he will be “re-evaluating” America’s relationship with Saudi Arabia.
The decision certainly comes at a bad time for the U.S. President: the fear is that the cuts will ensure higher oil prices coming into the November midterms, thereby forcing the Federal Reserve (and other major central banks) to sustain currently restrictive monetary policies, risking a global recession in the process.
But is Saudi Arabia really the bad guy here?
It is true that in the short term an OPEC production cut could well lead to higher petrol prices, but it is worth noting that the usually cautious World Bank has put out a recent analysis suggesting a global recession might happen if the central banks continue to tighten monetary policy.
Given that oil demand turns negative when global recessions hit, Saudi actions are therefore economically rational, even if the timing of the cuts do seem calculated to send a message of rebuke to the U.S. government.
It’s no secret that the U.S. and Saudi Arabia alliance has never been anything more than a relationship of convenience. 9/11, Obama’s attempted pivot to Iran, and the murder of Washington Post columnist Jamal Khashoggi have all contributed to festering tensions between the two nations, but the Ukraine War offered a chance for a reset.
Joe Biden’s embarrassing fist bump with Crown Prince Mohammed bin Salman suggested that more oil might be coming America’s way, but not if it ran against Saudi Arabia’s, and OPEC+’s (a group that includes Russia), interests.
To some degree, America’s problems are self-inflicted. Thanks to a leader who has issued fewer leases for on-shore and off-shore oil production than any president since World War II, the White House has worked assiduously to cut U.S. domestic production and encouraged its ally north of the border to do the same.
With their embrace of a Green New Deal for the U.S. economy, the Biden Administration and its Congressional Democratic majority also adopted an implicit long-term strategy to shut down the U.S. oil and gas industry, which they view as friendlier to Republicans.
Paradoxically, then, this has left all leverage in the hands of OPEC+. For all the criticism levelled against the cartel (and Saudi Arabia specifically as the key swing producer), nobody has offered a satisfactory reason as to why OPEC+ should construct policy according to the whims of the U.S. election cycle, rather than maximising the value of a depleting asset.
There is also the question of whether the Saudi Royal Family needs Washington to safeguard their position at home anymore. The Saudis might well have decided that in the growing competition between the U.S./EU vs Russia/China, it is the latter bloc which might well be on the winning side. Given China’s dominance in manufacturing and an increasingly close alliance to a commodity-rich Russia (which addresses Beijing’s own longstanding strategic vulnerabilities), MBS may feel that he no longer needs to sustain a special relationship with Washington. Add to that these countries’ relative disinterest in human rights, and it’s easy to see why.
Shockingly, then, for those in the U.S. expecting unwavering cooperation from Saudi Arabia, the tables have turned. Events of the past few weeks suggest that they are the ones that need the less developed, oil-dependent economies of the Gulf more than the latter need them.
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SubscribeI doubt the Saudis are making a clear break with Washington; America remains too powerful to deliberately antagonize. But the US is also learning the limits of its leverage in our post-covid world.
Every nation in the world must surely look at the massive sanctions the US has brought against Russia and know that, at any time, they too could be targeted if the US is displeased. Even the US’s allies would do well to reduce their dependency on America.
I believe the US has overplayed its hand in Ukraine. They are willing to sacrifice Europe’s economy to pursue their war goals. The world sees this and is resetting its allegiances and is betting that, when the Ukraine war finally ends, not just Russia but the US will be weakened.
I doubt a permanent break. In my opinion, the Saudis do prefer having the Americans as a friend rather than an enemy. It could be that they are just trying to engineer for a Republican-controlled Senate and House whilst they wait for a Republican president in 2024
Based on their extraordinary statement today, the Saudi government resisted pressure from the Biden administration to manipulate oil prices before the midterm elections. If this is true, then it is the Democrats who tried to engineer a political outcome with the connivance of a foreign government.
The US and our favourite US baronet president Sir Neill de Mentia Bt., should leave all dealings and decisions to Israeli advice: they know how to deal with Arabs.
To me, all of this is political posturing before a mid-term election. The Democrats have a problem. The powerful climate wing of the Democratic party wants to eliminate fossil fuel entirely, a goal that is both impossible, and if it were accomplished, more suicidal than even the worst global warming projections, but civilization cannot run without fossil fuels… period. The establishment types in the Biden administration know this, but still need to satisfy their climate purist voters, who, while not a large group, are numerous enough to tip elections in a closely divided country and who are prone to support impractical candidates who, like their impractical ideological aims, have no chance of prevailing in the larger political world. From the start of the Biden administration, they have consistently limited domestic production of oil and gas to appease green voters and hoping foreign producers don’t do the same. Now, for different reasons, foreign producers are also cutting production, and ruining the political calculus. Appealing to the Saudis not to cut production at this juncture is a thinly veiled and desperate attempt to shift the blame in an evenly divided nation right before mid-term elections and given that a recession could well run into 2024, to provide a scapegoat should the recession be particularly bad and/or long. The establishment is quite properly terrified of a vengeful Trump regaining the presidency and their desperation is showing. The Saudis don’t care about America’s domestic politics, nor should they, and are acting rationally, judging that there is likely to be a recession regardless of what happens with energy prices. This is not some deep break in the US-Saudi relationship, which these days has more to do with opposing Iranian influence in the region and keeping terrorism in check than it does oil.
“The establishment is quite properly terrified of a vengeful Trump regaining the presidency and their desperation is showing.” I agree – but he’d have to be pretty vengeful to reach the level of Biden’s FBI. Maybe Trump really will dismantle the FBI and other parts of the deep state. They would deserve it.
I’m skeptical he’d actually go as far as the establishment has gone in trying to stifle him. As vindictive and thin skinned as he often appears to be, I think Trump in the end is a dog whose bark is far worse than his bite. What he cares about is being loved and adored by ‘his’ people. I don’t think he’s ever been the populist revolutionary that he plays on stage (or anything else he plays on stage). He’s basically what my father used to call a “flim-flam man” a sort of snake oil salesman who relies on his flamboyant presentation to sell a worthless or illusionary product. The hyper over-reaction to Trump from 2016-Present tells me two things. 1.) That the establishment/ruling class is deeply and existentially afraid of a popular political uprising changing the way America and the world has been ruled, and who is doing the ruling, since the 90’s. and 2.) That they are not competent enough to tell a genuine threat from an illusory one. That said he does have a habit of nursing personal grudges so certain individuals within the deep state probably have a great deal to fear from Trump 2.0 even if he never has the vision, will, or intention of dismantling the deep state itself.
Really? The USA needs Saudi more than Saudi needs the USA? This is Saudi which is in a very protracted war with Yemen using vastly superior weapons and that it just can’t win; and with their fanatical religious enemies, Iran, just across the water desperately looking for a chink in the Saudi armour – currently provided by the USA, which would leave them vulnerable if the Americans left. Meanwhile the USA is self sufficient in energy.
Nah, if Saudi breaks with the USA, they will be making a very big mistake. I hope they do it as I’d like to see the Middle East despots come crashing down.