Analysis – The oil production cut by the oil country club OPEC+ came as a big surprise to both Europe and the US last week. Starting in May, OPEC countries will produce a million barrels per day less. Saudi Arabia says the production cuts are a precautionary measure to stabilize the oil market.
The production cut announcement had a major impact on oil prices Got it, from below $80 per barrel to above $85 per barrel. In response to this, petrol prices have already risen sharply in countries including the Netherlands.
Saudi Arabia has made it clear to the US who controls the global oil market
OPEC+’s decision is a major setback for the US and Europe, where central banks have raised interest rates in a fight against high inflation. The last thing people want is high oil prices interfering with inflationary policies. Higher energy costs mean more expensive materials, more expensive transportation and all end up on the consumer’s plate.
The White House called OPEC’s production cuts “unwise” given the “current uncertainty in the market.” Market analysts spoke of OPEC’s attempt to attack Western countries in the fight against hyperinflation. The Washington Post wrote.
Because that’s what it comes down to Essayist David Ignatius concludes In the same American newspaper. According to him, the OPEC+ production cut is a signal from Saudi Arabia to the US: “For better or worse, the era of US hegemony in the Middle East has come to an end”.
The strained relationship between Saudi Arabia and the United States
The production cut underscores decades of strained relations between Riyadh and Washington. Recent lows include the devastating war and humanitarian disaster in Yemen and the killing of journalist Jamal Khashoggi in the Saudi embassy in Turkey.
During the 2020 election campaign, US President Joe Biden emphasized that he wanted to reduce Saudi Arabia to a superpower on the world stage due to Khashoggi’s death. But the economic crisis, first the corona crisis and then the energy crisis resulting from the war in Ukraine, forced Biden to go back on those words.
Even a friendly fistfight during their first face-to-face meeting in July 2022 could not salvage the frosty relationship between Biden and Saudi Crown Prince Mohammed bin Salman.
If you look a little further into the past, the two countries have always had a difficult relationship. The foundation of the relationship between the United States and Saudi Arabia was laid after World War II. In exchange for security, including weapons and military training, the US gained access to Saudi Arabia’s fossil fuels.
The relationship was bumpy from the start. Bloomberg writesAmong others, because of Riyadh’s attitude towards the State of Israel and Saudi Arabia’s poor human rights situation.
US and Saudi Arabia’s attitude toward Iran is an additional complication. Relations between Iran and Saudi Arabia have been strained since the 1979 Islamic Revolution, with both countries claiming to be the forerunners of Islam.
America’s tough stance on Iran has long played into Saudi Arabia’s hands, but that country is now strongly resisting. The defunct Iran dealThis would allow Iran to regain access to international oil markets.
It shows that Saudi Arabia does not want to be led politically by the US
The Washington Post columnist Ignatius writes that Riyadh has decided it wants to take a more independent political course, with Washington speaking out against Saudi Arabia. “Both countries do not want to destroy the relationship, but both leaders feel disrespected.”
The recent production cuts should show that Saudi Arabia is a dominant player in the region and the world. That’s why its announcement came as a surprise. US energy expert Jason Portoff and economist Karen Young write in Foreign Policy.
In October last year, OPEC+ cut oil production under the leadership of the Saudis, but the news at the time was that no further supply curbs were in the pipeline in the short term.
According to Portoff and Young, the new production cuts are aimed at “angering” the government in Washington: “Riyadh wants to make it clear that it is following its own diplomatic course.”
Saudi Arabia is targeting China as a market for arms and Russia as an oil partner
“In today’s increasingly risky world (…) it is increasingly clear to the Gulf states that they must fend for themselves,” Portoff and Young write.
Saudi Arabia joins the US as an arms supplier and custodian of important waterways for oil transport, China as the largest customer (allowed to pay for oil in yuan instead of dollars) and Russia as a controlling partner in OPEC+. Oil supply.
Although Saudi Arabia still lives off the country’s vast oil reserves, the regime is also cautiously preparing for a future in which fossil fuels become scarce and their consumption declines. By raising the price of a barrel of oil, the country can easily finance the ambitious plans of its Vision 2030 reform plan.
Riyadh wants to invest heavily in diversifying Saudi’s economy, hoping for a future free of fossil fuels. The ambition is to turn the oil state into a second Silicon Valley.
Last year, venture capitalists already invested $1 billion in local startups, a third of the investment in the technology sector in the Middle East. Al-Monitor writes. Saudi Arabia’s sovereign wealth fund, Sanafilworks According to the site Axios Along with major US venture capitalists such as Andreessen Horowitz, Couture and Techstars.
Saudi geopolitical ambitions increase the risk of conflict closer to home
Saudi Arabia’s independent geopolitical position poses risks to the country. For example, Hadi Fadallah, an energy expert at the Carnegie Endowment for International Peace, an American think tank, sees a further unraveling of closely linked energy and security policy. “Riyadh’s new energy policy has already torn up longstanding political agreements that ensure the kingdom’s security,” he said. Fatallah writes.
The biggest risk is that the US and other Western countries accelerate their search for alternatives to Saudi oil and, in that context, become less concerned about the security situation in the Gulf region.
Riyadh’s geopolitical musical chairs weaken the Saudi kingdom’s overall security situation, Fatallah believes. According to him, we have already seen examples of this in the war against the Houthis in Yemen, who managed to launch several attacks on Saudi oil installations in 2021 and 2022.
So it remains to be seen how the independent approach of Saudi Arabia will turn out. The country has much to gain, but also much to lose.