On the fifth of October, the Organization of the Petroleum Exporting Countries and its ten partner states agreed to reduce oil production by two million barrels a day. The resolution was predictable and shocking. This was to be expected because OPEC, under the leadership of Saudi Arabia, had in the past telegraphed plans to reduce oil production. But it was shocking because Saudi Arabia and the U. S. are close security spouses, and senior U. S. officials are close to the public. I expected the Saudi government to be consistent with this, especially in light of the emerging costs of gas and broader inflationary pressures. Indeed, according to a recent New York Times report, US President Joe Biden’s most sensible advisers even thought Washington had made a deal of its own for Saudi Arabia to increase supply. When the Saudi energy minister met instead with U. S. -sanctioned Russian Deputy Prime Minister Alexander Novak, he met with Russian Deputy Prime Minister Alexander Novak. In announcing cuts, the White House was stunned.
U. S. politicians and analysts reacted to the Saudi resolution by criticizing Riyadh for its unexpected independence and Biden for his inelegant attempt at negotiation. During his presidential campaign, Biden denounced Saudi Crown Prince Mohammed bin Salman, known as MBS, for his poor human rights record. , just to meet him in July. For some U. S. analysts, the U. S. In the US, Saudi Arabia’s resolve to cut output after the president’s radical change was evidence that Riyadh was never going to be a reliable (or docile) wife and that it was a political mistake for Biden to make a stopover at MBS. Other analysts, on the other hand, have argued that Riyadh’s resolution was, in fact, Biden’s fault: the predictable result of the administration’s arrogance in asking Saudi Arabia to put U. S. interests before its own.
American observers are right to say that Washington has made frustrating decisions for the Saudis. But there is also a lack of domestic Washington on how Saudi Arabia formulates its economic and foreign policy. Simply put, Saudi Arabia, under MBS’s leadership, is preparing for a global political economy markedly different from that envisioned by the Biden administration. In its recently released national security strategy, the White House focused on how to win a China-controlled festival and highlighted a preference for dividing economic and political partnerships into two tracks: one with democracies and one with non-democracies conducted within the framework of foreign relations. Given America’s lack of enthusiasm for foreign frameworks, joining the trail of the moment will most likely result in the degradation of authoritarian states, and governments like Saudi Arabia have already detected this.
While Democrats and Republicans are less and less supportive of the U. S. -Saudi bilateral partnership, U. S. foreign policy may not be the main explanation for the breakdown in relations. They are fractured due to adjustments in Saudi Arabia’s domestic and foreign policy. MBS does not see his country as a second-rate player in a forked foreign formula similar to the one that existed during the Cold War; he sees the emerging geopolitical order as malleable, composed of a set of interlocking elements, and believes that Riyadh has the right to work with a constellation of converting partners to move markets and shape political outcomes. Its own economy as a global demand for energy and oil fluctuates, however, if it succeeds, no one will be able to prevent it from pursuing an independent course and pioneering another type of economic development. This vision is a dream of the Non-Aligned Countries. Movement of the 1970s, unless the unifying feature is nationalist opportunism rather than a postcolonial awakening.
MBS would probably be right. The world is entering an era of lack of confidence in power and hydrocarbons will be in constant demand for at least the next 20 years, a scenario that may also give Saudi Arabia more power. The foreign formula is becoming more fluid. Emerging market economies in general, and Saudi Arabia in particular, can also play a more vital role in global affairs.
For Riyadh, the long term belongs to emerging markets. From 2011 to 2021, these economies accounted for 67% of global GDP growth and account for 49% of global GDP. Over the next 4 years, emerging economies are expected to grow by an average of 3. 9 consistent with one cent consistent with the year: faster than those of the Organization for Economic Cooperation and Development, and account for a growing percentage of the volume of global trade.
This bloc of states includes Saudi Arabia Saudita. De fact, according to its leaders, Saudi Arabia is one of the most important emerging markets in the world. The country is home to a giant economy with a top GDP commensurate with capital and exports enough oil to influence global energy prices. It hosted the G-20 of 2020 (albeit virtually) and, 4 years before that event, unveiled its Vision 2030, which grants an ambitious long-term in which the country stops relying on carbon-based fuels and builds futuristic cities capable of surviving all climate risks.
This plan has filled Saudi citizens and government officials with new confidence. The country, and other Gulf states, now see themselves as models of expansion and development. And they feel a desire to reorient their alliances to prepare for a less robust global order. maybe even a post-American era. The Riyadh resolution in 2016 to coordinate OPEC with non-OPEC states, forming OPEC, is precisely this kind of policy planning. OPEC is neither ideological nor bound by a treaty. Rather, it is an alliance of countries that are willing to do business with others when it fits their non-unusual interests. They are even willing to challenge the United States to achieve their goals.
The Russian-Saudi partnership, introduced under OPEC+, is emblematic of Riyadh’s new vision in terms of foreign policy. For Saudi Arabia, it was not just a matter of business; it was also an act of self-preservation. In the 2010s, the United States began generating more and more oil from its shale, flooding global markets and driving down costs. This challenged Saudi Arabia’s classic role as the main source of spare capacity in oil markets and undermined Riyadh’s ability to control global supply. But by partnering with Russia, Saudi Arabia may simply create more controlled leverage to force oil costs down, depriving its US rivals of investment by preventing US corporations from turning a profit. (National oil corporations under state control can more easily operate at a loss. ) The Russian-Saudi partnership was less herbal in March 2020, when the Asian oil market collapsed under the weight of the pandemic, putting the two states in fierce competition. Yet Moscow and Riyadh still saw coordination as the most productive way to navigate a global economy that wants oil but, thanks to the transition of power, is increasingly reluctant to invest in it. As a result, they stuck together.
From a commercial perspective, Russia’s invasion of Ukraine gave the Saudis another explanation for why to maintain the partnership. Riyadh sees the West’s coordinated moves to suppress Russian energy imports and add a planned cap on Russian oil prices, as a cartel of buyers threatening the Saudi economy. In the view of Saudi Arabia and other OPEC members, this cartel can potentially mark crude oil through point of origin, extraction approach and degree of carbon intensity, and then fix it accordingly. This practice would seriously undermine its global oversupply.
Washington, of course, has little patience with Riyadh’s industry calculations. He sees the Saudi government’s oil cuts as a slap in the face and a rejection of the U. S. -Saudi partnership. But in MBS’s worldview, with its changing constellations, which America believes is not decisive. Riyadh can work with him when it suits him, which means Saudi Arabia can balance its trade partnerships, adding with Russia, with its security needs, for which it relies heavily on the United States.
Many U. S. lawmakers. The U. S. has asked the White House to show MBS that its balance sheet cannot go through risking halting or reducing arms sales to the US. Namely, worrisome. The defense industry is influential in Congress, in part because it has production lines that generate thousands of American jobs. Your long-term service contracts for weapons and gadgets are not impulse purchases, and the industry would likely push aggressively to spare you any pause in Saudi production.
More importantly, the Gulf is already recalibrating its security dating with Washington. This resolution is not about decreasing arms sales, but about diminishing America’s willingness to use its own forces to protect the Gulf states. America is no longer the security wife it once was. US President Barack Obama made this transparent when he said Saudi Arabia deserves to “share the neighborhood” with Iran. to respond to the 2019 attacks on Saudi oil infrastructure. Biden’s degradation of marriage is only the newest in a broader trend in U. S. foreign policy. U. S.
Saudi Arabia knows that it has no choice if the US cuts off arms supplies (indeed, Russia cannot supply what Riyadh needs). It is looking to drive an economic transformation that more strongly links its economy to key markets, an effort that has already shown some success. Washington has accused the Gulf states of being too friendly with Putin, but his habit has not stopped European governments from flocking to the region’s energy markets, including Saudi Arabia. Since the beginning of the Russian invasion, power-hungry European states have signed long-term cooperation agreements on liquefied herbal gas, hydrogen and energy with Riyadh and other Gulf state governments. Critically, European governments have also agreed to export new weapons to the Saudis. Even Germany, which banned arms sales to Saudi Arabia. In 2018, he’s embracing the kingdom and promoting his defense team. Despite all the communiques in Washington, Riyadh may be right: the foreign order is fluid enough and the gdom kinsmen vital enough that they don’t have to decide sides.
Saudi Arabia’s oil decisions are not driven by foreign affairs alone. Just as Biden’s management sought to get the Saudis to steer OPEC’s production cuts away from the U. S. midterm elections. In the US (a request that now turns out to be transactional and misguided), Saudi oil policy is also driven through domestic calculations. MBS likes to set goals and then exceed them, adding with respect to OPEC decisions. His government had indicated that there would be a relief in production of the order of one million to 1. 5 million barrels consistent with the day. , an objective almost designed to show the power of MBS: a representation to his other friends that, despite external pressure to keep production high, he can reduce production even to lower levels than expected.
The West’s uproar over the announcement of relief of two million barrels per day was unjustified. Most OPEC states were already generating oil at daily rates under the new reduced quotas, so the announcement of the cut was symbolic. Despite the outrage, OPEC’s resolution has so far had a mild effect on the market’s oil supply. Prices have returned to their early October averages in two weeks. (The embargo and price cap on Russian oil exports pose a much greater risk to market supply. )
But OPEC’s resolution has a tangible goal for the Saudi economy. A relief in production creates unused production capacity for Saudi Arabia, giving it the opportunity to temporarily increase production. The world economy suffers a sudden drop in some other source of supply, such as Russia. It also signals to investors that the Saudi government is committed to maintaining oil profitability or at least creating a terrain for prices, encouraging corporations to spend more on the oil sector.
More importantly, the resolution was intended to help you avoid wild volatility in oil values. Despite strong demand, the Saudi government fears that the world’s preference for oil could fall sharply if the global economy plunges into a dishonesty with and more. Widespread recession. Saudi Arabia’s fiscal policy has been cautious for the same reason. The country’s pre-budget report for 2023 is likely to be based on oil values of $76 to $78 per barrel, with average oil production soaring around 10. 6 million barrels per day. The price is only a slight increase since 2022, when the price of oil was conservatively valued at more than $70 per barrel. The providence Saudi Arabia won this year hasn’t translated into a spending frenzy, at least not yet.
Instead, Saudi Arabia is bracing for the shock, either due to a collapse in demand or an unforeseen need for fresh oil supplies. He has an explanation why prepare. As the war in Ukraine continues and Russia targets civil and energy infrastructure, threats to global energy security will increase. As sanctions on Russia increase, the world may have less additional oil capacity and less pressure on the source of petroleum products. The energy policies that are in the White House for US oil export bans and the act of Congress (called “NOPEC”) that would allow the Department of Justice to sue sovereigns for fixing prices will have a chilling effect on any new investment in oil and gas. sector and will further disrupt oil refining and product deliveries. Saudi Arabia’s most important export market, China, has increased its imports of Russian oil, threatening Riyadh’s market share. And China is now buying in smaller volumes, thanks to the country’s weak customer expansion and Beijing’s continued commitment to its zero-COVID policy. All of these symptoms are worrying the Saudis, threatening oil revenues and Riyadh’s legitimacy as a stabilizing force in the global oil market.
For Saudi Arabia, of course, less force on oil means less force overall; Oil is a key tool the country uses to influence foreign affairs and attract global attention. Responding to those threats is therefore a watershed moment for young leaders and the Saudi technocratic elite. By running with Russia and deprioritizing the United States, they hope to protect their country’s strength over oil costs and, with it, their plans and vision for the future.
It is unclear whether those elites will succeed. But it is clear that his country and the United States are preparing for two other global economies. We see a tougher role in foreign policy and industry for emerging markets. The other sees states turning inward and focusing on their independence from national power, while emphasizing values-based engagement when interacting with the outside system. Oil will remain a component of the foreign policy of any of the countries. But in fact, they go in other directions. Riyadh and Washington may soon realize that they are more competition, in oil markets and models of economic development, than components.