The United States and Saudi Arabia are in a fierce battle over oil.The stakes are huge
The relationship between the United States and Saudi Arabia is one of the most important on the planet. And lately, it’s also one of the most annoying.
Angry officials in Washington vowed “results” after Saudi-led OPEC slashed oil production earlier this month, driving up pump prices just weeks before the midterm elections.
US lawmakers are threatening measures that were unthinkable not long ago, such as a ban on arms sales to Saudi Arabia and the liberation of the Justice Department. file a lawsuit against Collusion between a country and other OPEC members.
Riyadh has been caught off guard by a lust for revenge from US politicians. And Saudi officials have hinted at paybacks that could have big knock-on effects in financial markets and the real economy, including dumping U.S. Treasuries.
Neither side is even trying to hide their tension. After a senior Saudi official suggested the kingdom had decided to become a more mature political party, a senior White House official replied, “It’s not like high school romance here.”
What happens next matters.
If this decades-old relationship develops into a full-scale breakdown, it could have a huge impact on the global economy, not to mention international security.
“This is a new low. Relations between the United States and Saudi Arabia have deteriorated for years, but this is the worst,” said Eurasia Group director Clayton Allen.
The controversy is related to one of the biggest thorns among Biden-era voters: inflation and soaring gas prices.
After an unsuccessful attempt to persuade OPEC to produce more oil, President Joe Biden reversed a 2020 election promise to make Saudi Arabia a “pariah” over its human rights record. Biden visited Saudi Arabia over the summer and punched Crown Prince Mohammed bin Salman with his fist.
US officials believe they have reached a secret deal with Saudi Arabia to finally boost oil supplies by the end of the year, The New York Times reported this week.
they were wrong.
OPEC and its ally OPEC+ responded by increasing oil production by just 100,000 barrels per day. This is the smallest increase in its history. The move was widely seen as a “slap in the face” of the Biden administration.
What came next was worse.
In early October, OPEC+ announced plans to cut oil production by 2 million barrels per day. The move temporarily boosted oil and gasoline prices during a period of high inflation, infuriating US politicians.
“Neither side seems to understand each other,” Allen said. “Riyadh underestimated the severity of the US backlash, and the US thought we had a tacit agreement.”
International Energy Agency Executive Director Fatih Birol called the move “unprecedented” and “unfortunate” in an interview with CNN International on Thursday.
“When the global economy was on the brink of a global recession, they decided to push prices up,” Birol said.
Tensions have not eased, and officials from both countries have stepped up criticism of each other in recent days. From defending Biden’s energy strategy to denouncing it.
At an OPEC+ press conference in early October, Saudi Energy Minister Prince Abdulaziz bin Salman appeared to applaud Biden’s decision to release an unprecedented amount of emergency oil reserves from its strategic oil reserves.
“I wouldn’t call it distortion. In fact, it was done at the right time,” Prince Abdulaziz told reporters. “If that hadn’t happened, I’m sure things might have been different than they are today.”
Three weeks ago, the same Saudi minister sang a very different tune.
Prince Abdulaziz said at a conference in Saudi Arabia this week, “People have depleted and depleted emergency stocks and used it as a mechanism to manipulate markets, but the deeper purpose is to alleviate supply shortages. It was to do,” he said. “But it is my grave duty to show the world that losing emergency stock can be painful in the coming months.”
Criticism is notable, especially given OPEC’s open market manipulation Men Withhold supply to support prices in many ways.
The risk is that the tension will develop into a cycle of retaliation and tit-for-tat. global Financial stability, or current financial stability.
Lawmakers on both sides of the aisle are clamoring for the DOJ to enact NOPEC (No Oil Production and Export Cartels) bill, which would give it the power to track OPEC countries for antitrust reasons. NOPEC is nothing new, but it seems more likely than at any point recently. Eurasia Group projects a 30% chance of NOPEC passing and a 45% chance of a watered-down version of the bill.
“I can’t stress enough how upset so many lawmakers are,” Allen said.
Lawmakers are not only shaken, they recognize that OPEC is not loved by voters.
“This is popular. The American sentiment is anti-Saudi Arabia. It states: “NOPEC will be harder to reject than it used to be.”
Saudi Arabia was able to respond to the penalties from Washington with drastic measures of its own. further intensify the conflict.
Saudi officials have privately warned that the kingdom could sell US Treasuries if parliament passes NOPEC, The Wall Street Journal said this week, citing people familiar with the matter. reported.
At the very least, dumping U.S. Treasuries would add uncertainty to an already troubled market. A fire sale will push up bond yields, destabilize markets and drive up borrowing costs for families and businesses.
And of course, Saudi Arabia’s own holdings would suffer in such a fire sale.
Saudi Arabia has about $119 billion in U.S. debt, according to Treasury Department data. world’s 16th largest holder of US Treasuries.
Another risk is that Saudi Arabia, the de facto leader of OPEC+, will remove further supply from the global oil market, or at least deal with future price spikes as the West continues to crack down on Russia. There is a possibility of refusing to
Any further suppression of OPEC supply would lead to higher gas prices, exacerbating inflation and heightening already high recession risks.
All of this explains why a full-scale breakdown in US-Saudi relations is not what the fragile economy needs right now.