Pages

10 October 2022

What Did Saudi Arabia Just Do?

Jon B. Alterman, Joseph Majkut and LinkedIn Ben Cahill

On Wednesday, the Organization of the Petroleum Exporting Countries and allied producers (OPEC+) announced a two million barrels per day (b/d) production cut and an extension of the cooperation agreement between the core OPEC countries, Russia, and other producers through 2023. A worsening economic outlook and declining oil prices in the past few months created strong incentives for OPEC+ to cut output, but the move had geopolitical drivers as well. Ahead of proposed EU sanctions and a potential price cap on Russian oil exports, Saudi Arabia and the other OPEC+ producers are trying to reassert control of the market. They explained the decision in technocratic, market management terms, but the cut defied extensive lobbying from the White House and was interpreted by many as a move to support Russia. OPEC+ wants to gain the upper hand as Western policymakers are poised to impose another round of sanctions on a major oil producer.

Q1: Was this targeted at the United States?

A1: This will be read as a challenge to the United States because of the extensive lobbying from the White House to maintain (or increase) production, which began with President Biden’s visit to Saudi Arabia in July, and the continued alignment with Russia. It will also influence U.S. politics, with gas prices rising ahead of the midterm elections and the president so publicly spurned. It is hard to imagine that the Saudi leadership did not understand that, and they do not appear to have done anything to soften the impact. Indeed, the fact that OPEC+ gathered in Vienna for the first time since 2020 to announce these cuts suggests that they wanted to send a strong message. The president did not expect the Saudis to completely cave, but he could not have expected to be ignored or snubbed, either.

Q2: How will the White House react?

A2: The White House will have to react for both political and diplomatic reasons. There is already a line of argument that the Saudis humiliated the president after his July visit to the Kingdom. The White House must also be concerned with leaving the impression that the president can be denied with impunity. Biden will likely let Congress take the lead criticizing Saudi Arabia, and he will not want to get into a tit for tat with the country. Still, Biden will feel the need to demonstrate that crossing the president has serious consequences. The United States should look for some moves on the energy front, but also a pause in some U.S. efforts that the Saudis were interested in pursuing.

Q3: Does this mean the Biden trip to Saudi Arabia in July was a failure?

A3: The Biden trip in July was not all about energy—it was about having a forward-looking agenda for the broader bilateral relationship. It looked at issues of economic cooperation, educational cooperation, technological cooperation, and a whole range of other things. But there certainly was an energy component. More importantly, there was a hope that by making the visit, the president would be laying the groundwork for a closer partnership between the United States and Saudi Arabia. The way this unfolded, it looks like the Saudis are not interested in a broader partnership with the Biden administration. The challenge for the Biden team now is how to be firm enough to change Saudi attitudes while not closing the door on closer cooperation, which was what the July trip was trying to promote.

Q4: What does this mean for the future of U.S.-Saudi ties?

A4: The picture is certainly less bright than it was a week ago. The Saudis are sending a signal that they do not want a close partnership with the United States on issues of energy and economics, and they want to be unaligned on geopolitics, because this move helps Russia. At the same time, they want a close partnership with the United States on regional security issues and particularly Iran. It is hard to pick and choose in that way, and it should be expected that the United States will be less consultative with Saudi Arabia on areas of shared interest going forward. An eye should also be kept on Congress, which has long been critical of Saudi Arabia. Legislation has been introduced to withdraw U.S. troops and missile defense systems from Saudi Arabia and the United Arab Emirates (UAE), and members of Congress are once again floating the idea of seeking to undermine OPEC. While action cannot take place for the month Congress is out of session for elections, a full-blown congressional effort could become difficult to constrain. Congress has sometimes moved suddenly on anti-Saudi legislation, as it did with the Justice Against Sponsors of Terrorism Act. The House passed the Senate’s bill from May 2016 with a voice vote in September and overrode President Obama’s veto.

No comments:

Post a Comment