Why is the US Upset About Saudi oil cuts?

Saudi Arabia's

When Joe Biden bumped fists with Mohammed bin Salman, Saudi Arabia’s de facto ruler, in Jeddah in July, it was seen as a painful example of realpolitik. Biden had promised to make Saudi Arabia a pariah state because of the killing of dissident journalist Jamal Khashoggi, but he was instead hanging out with the man who is thought to have ordered the hit. Today, it looks like that plan didn’t work, and the relationship is in shambles.

Biden went to Saudi Arabia to try to get the world’s biggest oil producer to pump out more oil to keep gas prices from going up because Russia invaded Ukraine. Instead, Saudi Arabia and other oil-producing countries in the Opec+ group, which includes Russia, agreed last week to a surprise cut in supply that will cause prices to go up. Vladimir Putin is without a doubt the winner.

In an interview on Monday, Biden said that the Opec+ decision would have “consequences” that he didn’t explain. On Wednesday night, US Democrats told Saudi Arabia that if the kingdom didn’t change its mind, they would stop all arms sales for a year.

Why would Prince Mohammed risk one of Riyadh’s most important alliances to help the struggling Russian government? What will this mean for oil prices and Russia’s ability to fight the war?

What are Opec and Opec+?

In 1960, the Organization of the Petroleum Exporting Countries was created as a way to raise oil prices in response to the US’s limits on oil imports and the huge power of big oil and gas companies. There are 13 member states right now, with Saudi Arabia being the most powerful. Russia is part of an expanded group of oil exporters called Opec+. This group was started in 2016 as a way to counter big new challenges to Opec’s ability to control the market, like the rise of renewable energy and the US becoming a major exporter.

Economists usually think of Opec and Opec+ as textbook examples of a cartel. This is because member countries agree to coordinate how much oil they produce to change prices. Opec+ countries control about half of all crude oil and 90% of proven oil reserves. When they cut production, like they did last week, prices go up.

Why has this decision made things so hard?

Opec has been a normal part of the oil market for decades, but this decision is about something very different. The move is very good for Russia, even though it will raise the price of gasoline and, by extension, inflation at a time when the economy is in trouble.

When European countries started to cut back on their oil imports, Moscow’s oil income dropped by a lot. Even though Opec and Opec+ agreed to cut production by 2 million barrels per day, Russia was already producing far less than its quota. This means that Russia will be able to produce more oil at a higher price because of this decision.

The news has been especially bad in the US, where rising gas prices are likely to hurt Vice President Biden right before important midterm elections. It could also be seen as a humiliation because Biden went back on his campaign promise this summer to make Prince Mohammed less important because of Khashoggi’s death.

“A lot of Democrats were against it, and there was also the moral question of the war in Yemen and the death of Khashoggi,” says Julian Borger, who is in charge of world affairs at the Guardian.¬† Democratic senators think they have stayed quiet a lot to give Biden a lot of room to move on this.

Even within Opec+, says Dr. Neil Quilliam of the Chatham House think tank, there will be some worry. Even if the member states agree with the market expectations that caused Saudi Arabia to take this posture, they will still be concerned about how strongly the United States will respond. For example, Kuwait, which still places a lot of value on its relationship with the US, will be very worried by what’s going on.”

What is Saudi Arabia’s relationship with Russia like?

People who thought Biden’s trip to Jeddah was doomed from the start could have pointed to a $500 million investment by a Saudi firm in Russian oil giants Gazprom, Rosneft, and Lukoil at the start of the Ukraine conflict, or to Riyadh’s decision in the summer to double its purchases of Russian oil for its power plants so that it could export more of its crude.

Sheikh Mohammed bin Zayed Al Nahyan, the president of the United Arab Emirates, which is a close ally of Opec, went to Moscow on Tuesday to meet with Putin in person. All of this shows that Saudi Arabia and its allies have made a big change this year toward Russia.

Part of this is a cold economic calculation based on the fact that everyone wants oil prices to stay high. “But it’s also an unfree alliance,” Borger says. They consider it offensive that the U.S. and its allies seek democratic reforms despite their social conservatism. They see themselves as a way to protect the world from the way the US thinks.”

What will the US do?

In his interview on Monday, Biden said that if oil production is slowed down, there will be “consequences.” He didn’t say what those consequences might be, though. Senior Democrats in Congress want radical steps to be taken that would hurt Saudi Arabia’s economy and military power.

Senator Bob Menendez, who is in charge of the foreign relations committee, said he would vote to stop future arms sales. The New York Times said that the Senate majority leader, Chuck Schumer, was “seriously considering” legislation that would allow lawsuits against the Saudis for price fixing. In this article, Senator Richard Blumenthal and Representative Ro Khanna call for a law that would stop all US arms sales right away. They say that it would take Riyadh decades to switch to other suppliers, so Prince Mohammed would have to negotiate.

Borger thinks that “this is an issue that both Democrats and Republicans can agree on, at least for now” But he says that there may be another reason why Opec+ made its decision. He says that Prince Mohammed may have thought that a Trump presidency and Republican control of Congress would be good. Borger says that by having a likely effect on US gas prices, they are “putting their thumb on the scale of the US election.” “This is a bet on the Republicans, especially Trump, more than it is a bet on Russia.”

What’s the next step?

Quilliam says that this is not a “can’t go back” moment. “US-Saudi relations will recover,” he says, in part because the relationship between the two countries is much more deeply rooted in both of them.

On Tuesday, the Saudi foreign minister said that the relationship with the US “has been institutional since the beginning” and that the Opec+ decision was “purely economic.”

To figure out how Saudi Arabia is likely to move forward, he says, it’s important to remember that “Prince Mohammed has shown himself to be defiant at every turn since Khashoggi’s death.” There seems to be a strong feeling that he wasn’t respected on a personal level.” In this analysis, the Guardian’s Middle East correspondent Martin Chulov says that he wants Saudi Arabia to “no longer be a Flintstones-like theocracy that shunned progress and hid behind a US security umbrella, but a wealthy middle power in its own right that chose its friends on its terms.”

In the short term, this seems to be good news for Russia and bad news for the US and its allies. A broken relationship could be very bad for Saudi Arabia in the long run. Borger says that Prince Mohammed is not a person who thinks about the future. He got Saudi Arabia into the expensive Yemen conflict. The killing of Khashoggi shows that he is lashing out at people he thinks are his enemies. If he’s betting on Russia’s economy, it looks like he’s backing the wrong horse right now.”

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