Why Saudi Arabia Rebuffed Biden’s Pleas For More Oil

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(Bloomberg) — The United States has accused Saudi Arabia of siding with Russia after it led OPEC+ in a shock decision to cut crude output, keeping oil prices high at a time of global concern. due to inflation The world’s biggest 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 US. The production cut came less than three months after President Joe Biden traveled to Saudi Arabia seeking more production to help lower prices.

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Here are some possible reasons why Saudi Arabia did this:

Oil vs Security

The basis of relations between the Middle Eastern monarchy and the Western superpower has been the understanding that the US 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 said the nature of the partnership between Washington and Riyadh had fundamentally changed. The alliance, they said, had become unbalanced.

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US attempts to revive a nuclear deal with Riyadh’s regional foe Iran, Saudi Arabia’s involvement in the Yemen war and what Gulf states perceived as Washington’s lack of protection against attacks by representatives supported by Iran, have contributed to tensions and a growing divergence in views.

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Privately, Gulf officials have long complained about US attempts to bully them into certain policy positions. US officials have been slow to recognize that intimidation does not work and that Washington must live with a new order based on mutual interests, according to a person familiar with the discussions within OPEC+, who asked not to be named discussing sensitive diplomatic issues.

Saudi power

Prince Mohammed, 37, is on a mission to present Saudi Arabia as a major player, using the billions it now earns from oil to prepare it to be a 21st-century power. Four years after the murder of commentator Jamal Khashoggi led to the prince’s semi-exile from the company of his international peers, there are signs that his confidence and ambition are undiminished.

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Saudi Arabia rejects Biden and helps Putin with oil production cuts

Last month, Saudi Arabia took the unusual step of announcing that the prince had helped broker a prisoner swap between Russia and Ukraine, introducing the leader-in-waiting as an international mediator.

At home, he has 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 protect him from US legal cases related to Khashoggi.

Other leaders have embraced it again as energy problems intensified after Russia’s invasion of Ukraine. Apart from Biden, the crown prince has welcomed the leaders of France, the United Kingdom and Germany to the kingdom this year. He has been cautiously mending ties with Turkish President Recep Tayyip Erdogan, who is seeking investment from an economy that is on track to be one of the fastest growing in the Group of 20.

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The desert kingdom this week even won a bid to host the 2029 Asian Winter Games in Trojena, part of a yet-to-be-built megacity.

Economy

Saudi Energy Minister Abdulaziz bin Salman said OPEC+’s decision was driven by market fundamentals and the group needed to be proactive during a period of extreme market volatility. The call to cut production was based on signs that a global recession is looming, the organization’s secretary-general, Haitham Al Ghais, told Saudi Al Arabiya TV in an interview.

Saudi Arabia’s preliminary budget contains some clues about the kingdom’s prospects. Based on those numbers, officials appear to be budgeting for Brent oil at around $76 a barrel next year, economists at Saudi investment bank Al Rajhi Capital said last month.

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That’s roughly 20% below oil prices this week, and much more bearish than most analysts expected. With that in mind, Saudi Arabia expects its budget for the year to barely run a surplus of 9 billion riyals ($2.4 billion), lower than previously estimated.

Faced with a choice between supporting the global economy at the behest of the US and risking its own, the Saudis chose themselves. And so did other Gulf states.

balance of powers

Gulf officials argue they need to balance their ties with both the US 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 US, does not criticize Saudi Arabia on human rights issues.

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Saudi Arabia and its regional allies have not joined sanctions against Moscow over the invasion of Ukraine, and privately officials say isolating it entirely could backfire. They are also wary of US attempts to punish Russia with tools such as price caps on its energy exports, moves that effectively shift price-setting power to energy buyers from sellers.

Biden’s team bristles at OPEC+ cut clouding election outlook

Meanwhile, US officials are trying to balance their efforts to punish Russia with the inflationary repercussions of doing so. And they are balancing their immediate desire for more OPEC oil with growing resentment of an uncooperative cartel that does not share US interests.

In the wake of the latest production cut, a White House statement called for “additional tools to reduce OPEC’s grip on energy prices.” The decision was also a reminder of why the US urgently needs to reduce its reliance on foreign sources of fossil fuels, he said.