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10/14/2022

OPEC+ decision to reduce oil production: A harbinger of a multipolar world

OPEC+ decision to reduce oil production: A harbinger of a multipolar world

Apparently, Arab Gulf states have come to the conclusion that their main alliance with the United States no longer serves their economic and security interests.

The Arab stance in general, and the Gulf in particular, regarding the condemnation of the Russian war on Ukraine was indecisive. It did not appear in statements issued by the Gulf capitals only, but was also evident in the voting on the relevant international resolutions.

A significant turning point

For years, the Gulf states have been quietly moving to diversify their security and economic alliances, with East and West, with China, Russia, and the European Union.

Sometimes, they were dissatisfied with Washington’s policies in the Middle East, and at other times they criticised the diminishing of the American presence in the region.

But they never come to the point of contradicting American interests and policies to the extent that political circles in Washington demand a review of relations with the most important Gulf countries and even sanctions against them.

Biden’s administration may have been upset by the Arab Gulf states’ indecisive stance on condemning the Russia’s invasion of Ukraine, but what happened this week represents a significant turning point in relations between the two parties.

OPEC+’s decision to cut oil production by 2 million barrels per day to boost crude prices was a slap in the face for the US president, who is leading intense international efforts to isolate energy-producing Russia over its invasion of Ukraine.

The decision posed a threat to Biden’s domestic policy agendas aimed at curbing inflation ahead of next month’s congressional elections.

The decision was also a statement that Biden’s visit to Saudi Arabia last July, partly intended to put pressure for increasing production, had failed.

American anger

American anger is evident in most of Washington’s political circles. In response to this decision, Democratic members of Congress called for the withdrawal of all US forces from Saudi Arabia and the UAE, and a reduction in military sales to Riyadh.

At the same time, the White House confirmed that all options are on the table. US Secretary of State Anthony Blinken said that his country is considering a number of measures against Saudi Arabia, after the decision of OPEC+.

John Kirby, a spokesman for the US National Security Council, said: the president is reassessing Washington’s relations with Riyadh.

Democratic Senator Bob Menendez also called for a freeze on security cooperation and arms sales with Saudi Arabia.

Democratic Representative Tom Malinowski announced that he would introduce legislation to withdraw US forces and missile defence systems from Saudi Arabia and the UAE.

The Democratic senator’s claims undermined the foundation of relations between the two countries. In 1945 US President Franklin D. Roosevelt met with King Abdulaziz bin Saud on a warship in the Suez Canal to establish a partnership between the two countries. 

As part of this partnership, Riyadh has given US companies priority in oil exploration and extraction in exchange for US protection that ensures security for Saudi Arabia from various threats.

This partnership was clearly embodied in 1979 when President Jimmy Carter pledged to defend the oil fields in the Gulf after the outbreak of the Iranian revolution, which adopted “export of the revolution” to neighboring countries, and the Soviet invasion of Afghanistan in 1979, and their approach to the warm waters of the Gulf.

Washington and Riyadh cooperated to drain the Soviet Union before its disintegration in Afghanistan, and they also supported Iraq in its war against Iran from 1980-1988. President George Bush also mobilized half a million American soldiers in an international coalition to defend Saudi Arabia against the Iraqi army and restore Kuwait in 1991. The US-Saudi alliance was also able to absorb the repercussions of the participation of 15 Saudis in the events of September 2001, and to enhance security cooperation between the two countries under the name of “combating terrorism“.

Saudi annoyance

But with Joe Biden’s arrival in the White House, signs of Saudi annoyance with American policy appeared. Riyadh did not hesitate to announce it through several messages one after another: announcing negotiations with China about selling oil in yuan instead of dollars, avoiding condemning the Russian invasion of Ukraine, the Saudi crown prince requiring a US presidential visit to Riyadh before accepting an increase in oil production, which happened in last July.

But with the absence of a fundamental change in US policy regarding issues that concern the Gulf states, especially the nuclear agreement with Iran and the politicisation of human rights issues, Saudi Arabia, the leader of OPEC, played a pivotal role in the decision to reduce oil production, which was considered a blow to the Biden administration ahead of the upcoming congressional elections.

But actually, the picture seems incomplete. Even if the previous explanation was correct, it does not show the exact reasons that led Saudi Arabia and the OPEC+ members to decide to cut production. There are intertwined political and economic factors that led to this decision.  

Economic factor

According to an informed Saudi source, the production cut represents a proactive measure aimed at avoiding a price collapse as the US Federal Reserve continues to raise interest rates.

“The Saudi economy has suffered from cycles of boom and stagnation in the oil market. The kingdom is trying to protect itself from such a possibility” the source said.

He explained that Riyadh is afraid of a repeat of what happened in 2008, when the global economy entered a recession that caused a collapse of crude prices.

“The kingdom cannot afford oil prices to fall below a certain level for budgetary reasons” he said.

“The budget needs oil prices to be around $79 a barrel. Last month, prices fell to $85 a barrel from $139 just 7 months ago. This was a warning sign for the kingdom and other oil exporters, who depend on oil for most of their revenue”, he added.

“Saudi Arabia is building modern cities in the desert that cost up to a trillion dollars, are committed to a huge government wage bill, and spend generously on government services and infrastructure. Guaranteed oil revenues prevent major disruption to the economy” he said.

Political dimensions

However, another Gulf source said that the political dimensions of the decision are strong and cannot be ignored.

“Although OPEC countries, especially the Gulf, are interested in the rise in oil prices in the light of global recession indicators, the acceptance of the Gulf countries to OPEC with the decision to reduce production shows that these countries no longer see Washington as a partner in energy and economic concerns,” he added.

The source noted that the OPEC+ decision is a message about the strength of member states’ relations with Russia, one of the biggest beneficiaries of the price hike that may result from production cuts.

“The decision taken by OPEC+, led by Riyadh, shows that the Gulf countries are in solidarity with Moscow and refuse to distance themselves from Russia, a member of OPEC+ since 2016”, he added.

“It seems that the partnership of Saudi Crown Prince Mohammed bin Salman and his ally, President of the Emirates Sheikh Mohammed bin Zayed, with Russian President Vladimir Putin has become an unquestionable issue”, he said.

“Paradoxically, Riyadh exploited this relationship in favour of the West, when, at the end of September, it succeeded in its mediation to release Western prisoners, including Americans and Britons, who were captured by Russia in Ukraine”, he added. 

Ineffective reactions

According to a retired Saudi diplomat, it is more than just a message to Washington.

“Security concerns of the Gulf states were exacerbated by US concessions to Iran regarding the revival of the nuclear deal”, the Saudi diplomat said.

“The possibility of lifting economic sanctions increased the risk of emboldening Tehran, which will strengthen and arm its regional proxies, particularly the Houthis in Yemen”, he added.

The former diplomat believes that the failure to renew the truce between the Houthis and the Saudi-led coalition due to the impossible demands of the Houthis “may be the beginning of an escalation in the region at the behest of their Iranian supporters, who are under enormous pressure amid raging protests at home and trying to preoccupy the Gulf states with the Yemeni conflict” he added.

“I think that reducing production, despite its economic dimensions, is a logical response to the serious US concessions on the issue of the nuclear deal, and congressional hesitant policies regarding increasing military support to Saudi Arabia”, he said.

On the US threats to the Gulf states following the decision, the former diplomat ruled out taking strong measures.

“The relations of the two parties sometimes witness this level of tension, but the two parties need each other in light of the current delicate international and economic conditions. No more than ineffective reactions can be expected”, he added.

The former diplomat expected that the US administration would adjust its policy, at least by increasing the military support for Riyadh in Yemen to the level that was provided by the administration of President Donald Trump.

Readiness for a multipolar world

But the visit of UAE President Sheikh Mohammed bin Zayed to Russia, a few days after the OPEC+ decision, represents a new Emirati message of moving away from the American position, and perhaps being indifferent to American threats.

The UAE, as a member of the Security Council, was one of the countries that refrained from condemning the Russian invasion of Ukraine.

Recently, Abu Dhabi has been implementing a policy based on diversifying alliances, opening up to past’s enemies, such as restoring relations with Türkiye, breaking taboos, such as normalizing relations with Israel. It is also expanding its strategic partnerships with Russia, India and China.

The observer of the UAE’s movements in the various geopolitical areas and hot spots is fully aware that it is pursuing a bold and active policy that does not care about the constants of the past.

Hence, bin Zayed’s recent visit to Moscow, in light of the Russian losses in Ukraine, devote a state of solidarity and coordination in many issues that began years ago, but it was not so clear to followers as it is now.

The Gulf states in general, and the Saudis and Emiratis in particular, are no longer mere spectators in international policy making. They are now active players, bolder, more independent, and most importantly, they have cards to play with which they impose their will to achieve their interests.

“They understand very well that the world today is going through a difficult ordeal that will result in a multipolar world in which their interests will not be held hostage to the only American pole. They are preparing for it. The Gulf states are currently at the peak of political maturity”, the Gulf source said.

“The interests of the Gulf states in oil issues with Russia are greater than sacrificing them in favour of Washington, which seems helpless and gambles a lot to appease Iran, which represents the greatest threat to the region”, the source added.

Islam Farag
Islam Farag is an Egyptian journalist, analyst and researcher. He is an expert on Middle East affairs and has contributed dozens of press kits on regional affairs and issues. He participated in many research projects within Egyptian governmental and non-governmental institutions. He has worked in many Egyptian and Arab press institutions as a journalist and analyst. He is interested in issues of the historic relationship of the Arab world with regional and world powers. Also he is interested in power conflicts in the middle east.

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