Saudi oil cuts indicate MBS no longer interested in appeasing US: WSJ

By Al Mayadeen English
Source: The Wall Street Journal
4 Apr 2023 13:37
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Crown Prince Mohammed bin Salman is prepared to put aside US concerns to pursue a nationalist energy agenda intended to finance an expensive makeover of his kingdom, a new report by WSJ suggests.

Flames seen at the production facility of Saudi Aramco's Shaybah oilfield, Saudi Arabia, May 22, 2018 (Reuters)

A new report by The Wall Street Journal suggests that the reduction by Saudi Arabia and its allies of their oil output shows that Crown Prince Mohammed bin Salman is prepared to put aside US concerns to pursue a nationalist energy agenda intended to finance an expensive makeover of his Kingdom.

On Sunday, the Saudi Energy Minister announced that the Kingdom will be cutting down oil production at a rate of 500,000 barrels per day until the end of 2023, for the sake of stabilizing the oil market.

According to analysts and Saudi officials familiar with the situation, Saudi Energy Minister Prince Abdulaziz bin Salman reportedly told industry analysts privately in February that the Kingdom would tolerate oil prices falling to approximately $65 or $70 per barrel. This weekend's action was therefore unexpected.

Due to concerns about a global recession, Brent crude, the benchmark for the industry, has been drifting lower since late last year and was getting close to $70 a barrel last month. Oil prices rose the most in a single day in more than a year on Monday, climbing 6.3% to $84.93 per barrel.

The report argued that it's the second time in less than six months that the Saudis have dismissed US fears that rising oil prices would support Russia's military-industrial complex, despite serious potential repercussions for the bilateral relationship.

The Saudis would stop at nothing to maintain oil prices at levels that are advantageous to them, and Sunday's output decrease is the clearest indication yet of this, the report stressed.

A "Saudi First" economic policy, as it is labeled by analysts, is being implemented by MBS to prioritize national interests at a time when there is growing doubt about the United States' commitment to defend its Middle Eastern allies due to increased great-power competition in the area.

According to those familiar with the conversation, MBS told associates late last year he was no longer interested in courting the United States and that he expected something in return for anything he gave Washington.

The report clarified that the decision by Riyadh, according to officials and others acquainted with Saudi Arabia's oil policy, wasn't unexpected because Riyadh needs to defend higher prices to pay for enormous domestic development projects, some of which are so large that the Saudis refer to them as megaprojects.

These include a futuristic, $500 billion high-tech city in the desert that is 33 times larger than New York City and a Red Sea resort the size of Belgium with Maldives-style buildings that float above the ocean.

On his account, Farouk Soussa, Middle East and North Africa economist at Goldman Sachs, said, as quoted by WSJ, that "Saudi Arabia is less inclined to subordinate its economic interests to support those of the US than they have been historically."

“The Saudis have to guard against downside scenarios” of global recession and the significance of energy demand, which could drive oil prices under a yearly average of $80 a barrel and create a budget deficit, he said.

MBS, the de facto ruler of Saudi Arabia, is seemingly halfway through an ambitious plan to utilize his nation's oil money to overhaul its economy, reshape its physical environment, and overthrow its traditional culture.

With the war in Ukraine, oil prices rose to $100 per barrel, prompting the Kingdom to step up its efforts. These initiatives are mostly funded by the $650 billion sovereign wealth fund headed by MBS.

Saudi economic advisors have privately told senior decision-makers that the country needs high oil prices for the next five years to continue investing billions of dollars in projects that have only so far garnered modest foreign investment.

After the decision made on Sunday, production limits in Saudi Arabia, Russia, Iraq, the United Arab Emirates, Kuwait, Algeria, Oman, and Kazakhstan will be reduced by more than a million barrels per day beginning the following month.

The report expounded that the action has substantial political repercussions and may enflame Riyadh's already tense relationship with the United States.

As the West's war against Russia, Saudi Arabia, formerly a dependable US security partner, has been shaping energy policy in opposition to Washington for more than a year.

With sanctions and a price cap, the United States attempted to cut off Russia's income as one of the largest oil and gas producers in the world, but actions taken by Saudi Arabia-led OPEC and another group of producers led by Russia helped support crude prices throughout the majority of 2022, as per the report.

This is happening as Iran and Saudi Arabia agreed to restore diplomatic relations and reopen missions in respective countries after a series of talks brokered in Beijing. China was able to spark the process of reconciliation between the two nations on March 10. Since then it seems the heads of state in both countries have extended official invitations to one another.