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Evaluating US-Saudi Relations following OPEC+ decision to Slash Production

On 5 October 2022, in Vienna, an association termed as OPEC+ comprising of 13 oil-exporting countries and 11 non-OPEC allies that include states such as Saudi Arabia and Russian announced a steep slashing oil production of two million barrels a day. The declaration which would be effective from November was deemed as a necessity to tackle the surging Western interest rates and a fragile global economy. Consequently, this would encourage a recovery in the oil prices following the OPEC plus cartel’s decision of 2020 June to lower oil costs from $120 to $80 since the COVID-19 pandemic. The beginning of the year marked the Brent prices close to $79 a barrel that hiked above $127 in March being the highest in 14 years- only two weeks after the Russian invasion of Ukraine.

This critical measure has faced backlash and raised furor in Washington as it will ratchet oil prices for U.S consumers. To further worsen matters, the OPEC+ decision was later followed by Saudi Aramco’s announcement on raising prices on oil shipments to the United States while retaining or lowering the prices for European and Asian shipments.

Washington claims that Saudi Arabia has opportunistically used the OPEC platform to its advantage considering the geopolitical tensions between the two states.  As a matter of fact, Saudi Arabia is the largest oil exporter and claimed to be the de-facto leader in the cartel market but members of OPEC+ claim that decisions are made in harmony.

Significantly, this turmoil takes place when the crucial midterm elections are around the corner in November. The Biden administration on 19 October in an attempt to lower gas prices to counter OPEC Plus’s latest production costs announced to release 15 million barrels of oil from America’s Strategic Reserve. Concurrently, it is apprehended that Saudi Arabia and other OPEC Plus members will respond negatively.

The U.S.A will not only face the brunt of the oil cut supplies on its energy markets. The West has accused the Kingdom to side with Russia in the ongoing Russian-Ukraine turmoil. They assert that the hike in oil prices would pull up profit for the Russian government that is under heavy Western sanctions, aiding the Russians to fund the war and aid war machine in Ukraine.

Therefore, the Democratic Party lawmakers have rattled heads to re-evaluate the relationships between Washington and Riyadh while reiterating a termination of defense agreements with the Kingdom. Leader of the Democrats in the US Senate, Chuck Schumer remarked the judgement as an “appalling and deeply cynical action”. For instance, he announced a legislative bill titled as NOPEC that would permit US Justice Department to sue OPEC+ countries and their state-owned oil companies tweaking U.S. antitrust law. A Senate member who deals with defense matters, Richard Blumenthal lodged a one year suspension on weapons sale such as freezing the Advanced Medium Range Air-to-Air Missiles (AMRAAMs), associated launchers sale worthy of $650 million and a $3 billion sale of Patriot missiles.

Lawmakers also stressed on freezing ‘all aspects’ of U.S cooperation with the Kingdom. Biden administration officials consider making an attempt to discourage American companies from extending business ties with Saudi Arabia. A Democratic lawmaker in the wake of Kingdom’s recent decision to incline with Moscow expressed his concerns about the likelihood of sensitive US defense technology could be shared with Russia.

The bilateral relationship have dwindled due to a number of reasons.  The murder of Washington Post columnist Jamal Khashoggi in 2018 for which in 2020 Biden pledged to make Saudis pay the price and  make it a pariah even before assuming the presidency and held Mohammed bin Salman Al Saud, the Crown Prince of Saudi Arabia accountable. For the aforementioned reason, he was widely criticized for his hypocrisy among the masses and public when he gave a friendly fist bump to MBS during his July visit. Critics claimed that the US-Saudi alliance, had become unbalanced. The tour yielded no fruit though it was motivated at patching the relations between Washington and kingdom and increasing oil production. Thus MBS apparently currently views the US only as a security provider.  Whereas, President Trump was highly regarded by the Crown Prince. Trump unlike his predecessors in 2017 made his first foreign trip to Riyadh where both the states signed a ground breaking $350 billion additional weapon sale deal to Saudi over the next 10 years including a $110 billion agreement of immediate sales. Similarly, Trump was the one who vetoed three individual Congress Bills that would have stopped arms sale to the kingdom due to Khashoggi killing.

On the other hand, at the start of his presidency, Biden passed fiery statements. He categorically declared that the United States would no longer support Saudi “offensive” operations in Yemen and removed the Houthi militia from the list of terrorism what Riyadh views as lack of protection from Washington. Further, US efforts to revive the nuclear deal with Riyadh’s arch rival, Iran is also not appreciated by the Kingdom

These loopholes were pivotal in bolstering the Kingdom and other Gulf countries to direct themselves east towards China and Russia, specifically after the Washington’s failure to retaliate against Iranian backed Houthi proxy missile attacks. The September 2019 attacks not only ceased nearly half of the Kingdom’s oil production but also hit sensitive sites in Saudi Arabia and the UAE. But even before Biden traveled to Jeddah in July, Saudi officials remarked that the nature of the partnership between Washington and Riyadh had fundamentally shifted. Gulf officials argued diversifying relations with both US and Russia. Gulf States regarded the substantial Russian role not only in energy markets, but also in regional conflicts in Yemen, Syria, Libya, etc. Crucially, Russia is engaged in talks with Iran. Moreover, unlike the U.S. Russia has not raised its voice on human rights violation pleasing the kingdom.

The declaration has strengthened the perspective that US hegemony is steadily abating. Unlike instances of the past, the GCC states are far at a greater liberty to make their sovereign decisions which may similarly offset the US. The rise of US shale oil production was conspicuously an attempt to reduce OPEC’s market power. Statistics have shown that OPEC’s share of global oil production shrank from 43% in 2008 to 37% in 2019. Moreover, production cuts, domestic unrest or sanctions in member countries, OPEC production reduced between the years 2010 to 2019. In contrast, US oil production rose by nearly 10 Mb/d during 2009 to 2019 making US the biggest oil producer in the world. Thus these factors significantly contributed to the OPEC+ arrangement formalization in 2016 prompting Saudi Arabia to seek Russian cooperation.

The Chinese leave no stone unturned in making the most of damaged US-Saudi relations. The Kingdom is a central figure in Chinese BRI Program since it at the crossroads of the world’s energy supply routes. Similarly, the Chinese enjoy paramount role as Saudi trade partners making it difficult for the Riyadh to choose one of them. Hence, trying to undermine American stakes by projecting its economic and military power beyond. Saudi officials are also not holding back and recently reiterated its commitment to China as its “most reliable partner and supplier of crude oil.” Last year in March at the annual China Development Forum the Aramco chief executive officer, Amin Nasser declared that guaranteeing the rising Chinese energy security needs was the foremost priority.

Saudi Arabia claims “purely economic” factors for the decision, targeted at stabilizing energy markets. Apprehension of a global recession is looming and since central banks are pulling up interest rates, Riyadh justifies the step it has taken. Adel al-Jubeir, Saudi Minister of State for Foreign Affairs denied US allegations of politicizing oil or using it as a weapon. He clarified that Riyadh views oil as a commodity and hence it was not a political move.

At the UN General Assembly, the Saudis voted to the US drafted resolutions by calling out Russian invasion, occupation and annexation of parts of Ukraine. An illustration of Saudi support to Washington may be displayed that in September the Saudis and Turks had an instrumental role in clearing the way for a prisoner swap between Moscow and Kyiv. Its significance can be judged from the fact that two US citizens who fought on Ukrainian side were released as captives by Russia who previously had been detained in the battlefield. Moreover, on 14 October, MBS pledged a $400 million non-lethal aid to Ukraine. However, skeptics claim that this measure was significantly targeted at tackling the stance that Riyadh had its inclination to Russia in the Ukrainian conflict.

Critics point that the Kingdom has accommodated the Russians by playing its role in cutting two million barrels per day with OPEC Plus in the name of tagging market stabilization as justification.

A statement by Saudi officials also established the fact that the Biden administration ‘requested’ the country to delay the oil cuts for a month with the sole purpose to avoid a setback for the mid-term elections. The Saudi foreign ministry stated that through continuous consultation it has been conveyed to the U.S Administration that after vigorous analysis of economic indicators, it has been concluded that a month’s postponement would have negative repercussions.

In the near future, Saudi response to Washington’s measures may escalate the conflict further. The Saudi official’s precaution selling US Treasury bonds in case the congress passes NOPEC. Considering the possibility of dumping US debt, it would destabilize the market and increase borrowing rates for both states. Saudi Arabia holds an approximate of $119 billion US debt as per the data of Treasury Department accounting as the world’s 16th largest holder of Treasuries. Riyadh could further pull back supply from world oil markets or increase the price worsening inflation. This very well sums that a complete breakdown of relations between U.S and Saudi may be the last nail in the coffin of fragile world economy

On 16 October, US National Security Adviser Jake Sullivan made it clear that Biden has “no plans” to meet MBS at 15 November 2022 G20 Bali summit. This statement was followed by six days after US State Department had announced the tour of three The Gulf Cooperation Council sates along with Egypt the same month to reassure U.S commitment to enhance economic growth, security, and close ties with its partners. The crux was that there was no mention of Saudi Arabia in her schedule. Nevertheless, critics opine that such proactive reactions by Biden Administration would impede the strategic relations affecting US during the Biden tenure. The October 27, Future Investment Initiative conference in Riyadh was not attended by a single official of Biden administration. On the other hand, a meeting of the US-Gulf Arab working group on Iran has been postponed.

There is apt logic to suspect that tensions over OPEC Plus oil cuts will result in the strategic partnership crumbling despite many sources of tussle between Washington and Riyadh. It will be reductionist to claim so. The role the United States play for Saudi Arabia’s security cannot be supplemented by either China or Russia. Riyadh definitely needs to take in regard the penurious Russian military tactics displayed in Ukraine as well as the blooming military cooperation between its arch rival Iran and Russia  Similarly, yet the USA anticipates responsible Saudi oil production policy keeping in check the hiking oil prices.

In other words, it can be said that though the US enjoys not a deep or transactional relationship with Saudi Arabia but mutual interests are enough to keep it going. Be it trade and commerce, or issues like  counterterrorism or resisting the Islamic Republic of Iran both have displayed mutual cooperation. The U.S.A and Saudi enjoy relations in other areas of cooperation. Hence, being optimistic one may expect that relations between the two may have low ebbs but are unlikely to end despite Biden’s statement promising ‘consequences’ over oil production cuts in the recent oil spat. The resentment in the States may be regarded as a tempest in a teacup based on the justification that the U.S relies on fossil fuels and its cooperation with the kingdom that decades back to ages still share a number of important objectives, including regional and global security and stability.”

It definitely would not be a sensible initiative by the US to cut off diplomatic relations with the Saudis. Since as far as of now, it is the only state that has the potential to pump a considerable amount of oil in a short timeframe to sustain energy markets. Despite being energy independent, one cannot negate that yet fossil fuels cannot substitute renewable sources of energy. The domestic economy relies on a stable global economy to flourish necessitating the requirement of Saudi oil. However, paradoxically, timing of the oil cuts is significant. The U.S elections would decide which party would be held in charge of Congress, determining Biden’s tenure. Hence, it may be an attempt to bring Mr. Trump back to the oval office only if the Democrats lose track of the House and the Senate.

A recent 2 November statement by White House is an illustration of the fact that despite being at low ebbs, US expressed its concern about threats from Iran against Saudi Arabia and vowed protection and retaliation if necessary The statement is a response to Saudi Arabian shared intelligence with the US of an imminent targeted attack from Iran on the Kingdom. Similarly, another official assured defense by reiterating the presence of US F-22 fighter jets already stationed in Saudi Arabia to counter any threats.

Conclusively, there are three flexing points that would determine the scope of relations in the foreseeable future: the US midterm elections on November 8, the 4 December OPEC+ meeting, and an expected visit by Chinese leader Xi Jinping to Riyadh.

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Sibra Waseem

Written by Sibra Waseem

Sibra Waseem is a student at National Defense University, Islamabad. She is currently pursuing a bachelor's degree in Strategic Studies. She can be contacted at sibrataurus@gmail.com

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