In the mid-80s, it is said that U.S. President Ronald Reagan and King Fahd of Saudi Arabia colluded to destroy the oil markets by making it financially impossible for the then-Soviet Union to continue its Afghanistan venture.
Oil markets crashed. The war on Afghanistan became untenable for Moscow. The Soviet Union disintegrated, and the world became unipolar.
The players in this geopolitical game continue to be the same today. But they are aligned differently. Then, Saudi Arabia, the United States and Pakistan were aligned to humiliate and annihilate the Soviet Union. And they did.
Today, it is a different ball game: Riyadh is now in Moscow’s corner and standing up to Washington.
On Oct. 5, the Organization of Petroleum Exporting Countries (OPEC) and their allies in the extended OPEC+ met in Vienna and opted to cut their oil output by two million barrels per day. The decision infuriated Washington, which held Saudi Arabia responsible for the large cut.
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Coming just weeks before the mid-term elections, and after the Biden administration had applied considerable pressure on the Saudis to delay the announcement until after the mid-terms, the White House and Democratic senators were furious and threatened serious ‘consequences’ for Saudi Arabia.
The bigger question, however, is why Saudi Arabia made that decision.
Several factors seem to have been at play. To Saudi Arabia and other stakeholders, oil is a product to be sold – not a tool to advance geo-strategic objectives. This is not 1973, they insist. Times have changed.
Saudi officials insist politics was not involved in their decision to cut output. It was based on market conditions. They reject the notion that the decision was made in deference to Russia. “Show me, where is the belligerence?” Saudi oil minister Prince Abdulaziz bin Salman Al Saud said after the meeting. “Where is the ill intent?”
The priority for Riyadh is preserving oil market prices as Crown Prince Mohammed bin Salman (MBS) pushes ahead with an ambitious plan to diversify the economy. The plan is expected to cost hundreds of billions of dollars. With Riyadh heavily dependent on oil revenues, Saudi officials insisted that the kingdom had simply put its own economic interests ahead of domestic U.S. political considerations.
The 1998 OPEC decision to open their crude taps and then watch oil prices collapse continues to haunt Riyadh. With interest rate hikes in the U.S. and other major global economies, a slowdown in China due to its Zero COVID-19 strategy and talks of an imminent global recession, Riyadh couldn’t afford another financial debacle. The flow of petrodollars remains an integral prerequisite for the success of Saudi Arabia’s Vision 2030.
Furthermore, according to the Financial Times, producers see the push for higher output and lower prices through the lens of a battle for control over the oil market. The U.S. pledge to “transition from oil” and usher in a new clean energy era while leaning on OPEC to keep oil prices low, its decision to begin releasing crude from its emergency reserves and its plan to impose a price cap on Russian crude oil exports were enough to ring alarm bells among the OPEC oil producers.
For these reasons, OPEC couldn’t let the control of the oil market pass into the hands of ‘wealthy consumers.’ They felt they needed to counter any attempt to form a ‘buyer’s cartel’. OPEC’s decision to cut output can be seen to have been taken from that perspective, the FT report hinted.
Global warming and environmental considerations are also a cause of concern to major energy producers. This is resulting in growing emphasis among the oil producers to monetize their energy assets as soon as possible. Producers didn’t want the markets to crash.
There is also a growing feeling in Riyadh that the U.S. security umbrella is not as solid as it once was. Riyadh has been increasingly complaining about the ‘unpredictable U.S. policy’ – including towards its regional arch-rival, Iran.
Thus, a new geopolitical order seems to be emerging, and Washington is not as important to Riyadh as it used to be. However, this does not mean that Saudi Arabia will completely sidestep the U.S. Both continue to need each – but to a lesser extent.
This is the real new world order.
Toronto-based Rashid Husain Syed is a respected energy and political analyst. The Middle East is his area of focus. As well as writing for major local and global newspapers, Rashid is also a regular speaker at major international conferences. He has provided his perspective on global energy issues to the Department of Energy in Washington and the International Energy Agency in Paris.
For interview requests, click here.
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