Why Saudi Arabia rebuffed Biden’s pleas to help lower oil prices
(Bloomberg) — The U.S. has accused Saudi Arabia of siding with Russia after it led OPEC+ in a shock decision to slash crude output, keeping oil prices high at a time of global concern about inflation. The world’s largest oil exporter insists the decision was about economics, not politics.
The move marks a significant moment in the more than 70-year alliance between Saudi Arabia and the U.S. The output cut came less than three months after President Joe Biden traveled to Saudi Arabia seeking more production to help lower prices.
Here are some of the possible reasons Saudi Arabia did it:
Oil vs. Security
Underpinning relations between the Middle Eastern monarchy and the Western superpower has been an understanding that the U.S. provides the kingdom with military protection in exchange for a reliable supply of oil.
But even before Biden traveled to Jeddah in July, Saudi officials were saying the nature of the partnership between Washington and Riyadh had fundamentally changed. The alliance, they said, had become unbalanced.
U.S. attempts to revive a nuclear deal with Riyadh’s regional foe Iran, Saudi Arabia’s participation in Yemen’s war, and what Gulf states perceived as a lack of protection from Washington against attacks from Iranian-backed proxies, have all contributed to tensions and a growing divergence in views.
Privately, officials in the Gulf have long complained about US attempts to bully them into certain policy positions. U.S. officials have been late to recognize that intimidation isn’t working, and that Washington needs to live with a new order based on mutual interests, according to a person familiar with deliberations inside OPEC+, who asked not to be named discussing sensitive diplomatic topics.
Prince Mohammed, 37, is on a mission to present Saudi Arabia as a major player, using the billions it earns from oil now to prepare it to be a 21st-century power. Four years after the murder of commentator Jamal Khashoggi led to the prince’s semi-banishment from the company of his international peers, there are signs that his confidence and ambition are undiminished.
Last month, Saudi Arabia took the unusual step of announcing that the prince had helped broker a prisoner swap between Russia and Ukraine, presenting the leader-in-waiting as an international mediator.
At home, he’s also taken on the additional role of prime minister from his father, the king, formally making him head of government. It’s a move his lawyers have argued should also shield him from US legal cases related to Khashoggi.
Other leaders have returned to embrace him, as energy woes intensified following Russia’s invasion of Ukraine. Aside from Biden, the crown prince has hosted the leaders of France, the UK and Germany in the kingdom this year. He’s been cautiously mending ties with Turkish President Recep Tayyip Erdogan, who’s seeking investment from an economy that’s on track to be one of the fastest growing in the Group of 20.
The desert kingdom this week even won a bid to host the 2029 Asian Winter Games in Trojena, part of a megacity that hasn’t been built yet.
Saudi Arabia’s Energy Minister Abdulaziz bin Salman said the OPEC+ decision was driven by market fundamentals and that the group needed to be proactive during a period of extreme market volatility. The call to cut production was based on indications that a global recession is coming, the organization’s secretary general, Haitham Al Ghais, told Saudi-based Al Arabiya TV in an interview.
Saudi Arabia’s preliminary budget statement holds some clues to the kingdom’s outlook. Based on those figures, officials look to be budgeting for Brent oil at around $76 a barrel next year, economists at Saudi investment bank Al Rajhi Capital said last month.
That’s about 20% below the price of oil this week, and far more bearish than expected by most analysts. Taking that into account, Saudi projects that its budget for the year will barely eke out a surplus of 9 billion riyals ($2.4 billion), lower than estimated previously.
Faced with a choice between supporting the global economy at the behest of the U.S., and risking their own, the Saudis chose themselves. And other Gulf states did too.
Gulf officials argue that they need to balance their ties with both the U.S. and Russia, which plays an important role not only in energy markets, but also in regional conflicts from Syria to Libya. Crucially, Russia is also involved in negotiations with Iran and, unlike the U.S., it doesn’t criticize Saudi Arabia on human rights.
Saudi Arabia and its regional allies haven’t joined sanctions against Moscow for the invasion of Ukraine, and privately, officials say that isolating it completely could backfire. They’re also suspicious of U.S. attempts to punish Russia with tools such as price caps on its energy exports, moves that effectively shift pricing power to energy buyers from the sellers.
U.S. officials, meanwhile, are trying to balance their efforts to punish Russia against the inflationary aftershocks of doing so. And they’re balancing their immediate desire for more oil from OPEC against growing resentment of an uncooperative cartel that doesn’t share US interests.
In the wake of the latest production cut, a statement from the White House called for “additional tools to reduce OPEC’s control over energy prices.” The decision was also a reminder of why the U.S. needs to urgently reduce its reliance on foreign sources of fossil fuels, it said.