A genuine divorce between the two countries appears likely
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.
Like what you’re reading? Get the free UnHerd daily email
Already registered? Sign in
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.