Foreign Affairs: The world in the eyes of Saudi Arabia
Foreign Affairs analyses the OPEC+-related US-Saudi Arabia debacle and concludes that the latter is more interested in its future than in maintaining current global balance.
The Organization of Petroleum Exporting Countries and its 10 partner countries (OPEC+) decided on October 5 to reduce oil output by two million barrels per day. Foreign Affairs wrote an analysis regarding the fundamental problem that emerged from that decision. According to FA, the decision should have been both expected and unexpected by US President Joe Biden's administration.
FA explained in its report that the Saudi Arabia-led OPEC+ has already hinted at plans to lower oil output, and thus, such a decision should have been anticipated. However, given that Saudi Arabia and the US are strong allies in the security realm, the decision was startling.
In fact, top Biden advisors, according to the report, reportedly believed Washington had secured a confidential agreement with Saudi Arabia to expand supplies, according to a recent New York Times investigation. The White House was shocked when, instead, Russian Deputy Prime Minister Alexander Novak and the Saudi Energy Minister met to announce reduction.
Biden often criticized Saudi Arabia's Mohammed bin Salman (MBS) for his shoddy record on human rights throughout his presidential campaign, only to meet with him after becoming US President. Some American observers said that Saudi Arabia's move to reduce output was proof that Riyadh will never be a trustworthy partner and that Biden's visit to MBS was a political error.
Contrarily, the report reads, some experts claimed that Riyadh's actions were actually Biden's mistake, since it was an inevitable result of the administration's hubris in requesting that Saudi Arabia put US interests ahead of its own.
American observers are correct in saying that Washington has taken decisions that the Saudis find troublesome. However, there is also a lack of knowledge in Washington regarding Saudi Arabia's economic and diplomatic strategy. Under MBS's leadership, the report argues, Saudi Arabia is preparing for a global political economy that is far distinct from the one that the Biden administration foresees.
The world view through Saudi Arabian interests
According to Riyadh, the FA report noted, emerging markets are where the future is at. Emerging economies are predicted to develop at an average annual rate of 3.9% during the following four years, and account for a growing portion of the volume of global trade.
Saudi Arabia planned, according to the report, to develop its capacities, knowing it belongs to that tier of countries. This plan boosted hopes in the country and drove its administration; MBS primarily, became willing to challenge US decisions and interests if it meant protecting KSA's own.
The new Saudi Arabian approach to foreign policy is best demonstrated through the newly established Russian-Saudi alliance. As such, the report analyzes, it wasn't only a business issue for Saudi Arabia; it was also an act of self-preservation.
When the Asian oil market collapsed in March 2020 due to the pandemic, placing both countries in a bitter rivalry, the Russian-Saudi alliance was less natural. Moscow and Riyadh nevertheless believed that cooperation was the best strategy for navigating a world economy that requires oil, but is becoming less willing to invest in it as a result of the energy shift. As a result, they have maintained their relationship.
The war in Ukraine, Foreign Affairs says, has given the Saudis additional justification to continue the alliance from a financial standpoint. The coordinated efforts by the West to limit and stifle Russian energy imports, including a proposed price restriction on Russian oil, are seen in Riyadh as a buyers' cartel that poses a threat to the Saudi economy.
Saudi Arabia and other OPEC+ members believe that this cartel will someday be able to classify crude oil according to its country of origin, method of extraction, and carbon intensity—and then charge a price for it. This behavior would severely erode Saudi Arabia's ability to influence world supply.
Saudi Arabia is aware that, should the United States stop providing weaponry, it has no other options. As a result, it is attempting to quicken an economic transformation that will connect its economy to important markets, a move that has already had some success.
The US' exagerated reaction
Unjustified outrage, the FA report noted, was shown in the West when a two million barrel per day reduction was announced. The majority of OPEC+ members already produced oil at rates lower than the new, decreased limits, thus the announcement of the cut was in some ways symbolic. Despite the uproar, the OPEC+ move has so far had little of an influence on the market's supply of oil. Within two weeks, prices had returned to their early October norms.
However, the Saudi economy does stand to profit from the OPEC+ decision, the report explained. Saudi Arabia gains extra capacity from a reduction in production, allowing it to temporarily boost output in the event that another supply source, such as Russia, suddenly reduces its contribution to the global economy. Additionally, it sends a message to investors that Saudi Arabia is dedicated to maintaining the oil industry's profitability, or at the very least setting a price floor, which encourages businesses to increase their expenditures in the petroleum industry.
Saudi Arabia is prepping for impact, whether it comes from collapsed demand or an unanticipated need for fresh oil supply. It has good cause to prepare. The risks to the security of the world's energy supply will continue as long as the war in Ukraine continues, FA argued. As such, there may be less excess oil capacity available globally as anti-Russian sanctions tighten, impacting the supply of refined oil products.
In short, the report summarized, in Saudi Arabia's perception, the less power over oil production and supply means less power in general. In other words, oil is a significant factor that the country takes advantage of to influence international affairs, as well as command global attention.