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CNN Business
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The relationship between the United States and Saudi Arabia is one of the most important on the planet. And lately, it’s also been one of the weirdest.
Angry officials in Washington said it would deliver the “results” after the Saudi-led OPEC cut oil production sharply earlier this month and raised pump prices just weeks before the midterm elections.
U.S. lawmakers are threatening to take steps that would have been unthinkable recently, including banning arms sales to Saudi Arabia and freeing the Justice Department. bring a lawsuit against country and other OPEC members for collusion.
Riyadh was caught off guard by US politicians’ thirst for revenge. And Saudi officials are pointing to repayment, including dumping US debt, which could have major ripple effects on financial markets and the real economy.
Neither side is even trying to hide the tension. After a senior Saudi official suggested that the kingdom has decided to take the more mature side, a senior White House official responded by saying, “It’s not like the high school romance here.”
What happens next is critical.
If this decades-long relationship turns into a complete disintegration, it could have enormous consequences for the world economy, let alone international security.
“This is a recent decline. We’ve seen a deterioration in US-Saudi relations over the years, but this is the worst situation ever,” said Clayton Allen, director of the Eurasia Group.
Spit is linked to one of the biggest pain points among voters in the Biden era: inflation and high gas prices.
After unsuccessfully trying to persuade OPEC to increase oil production, President Joe Biden retracted his 2020 campaign promise to make Saudi Arabia a “pariah” on its human rights record. Biden visited Saudi Arabia over the summer and even bumped into Crown Prince Mohammed bin Salman.
US officials thought they had finally reached a collusion with Saudi Arabia to increase oil supplies by the end of the year, The New York Times reported this week.
They were wrong.
OPEC and its allies known as OPEC+ responded by increasing oil production by around 100,000 barrels per day – the smallest increase in its history. The move was widely seen as a “slap in the face” of the Biden administration.
Afterwards it was worse.
In early October, OPEC+ announced plans to cut oil production by 2 million barrels a day – a move that briefly raised oil and gasoline prices during a time of high inflation and infuriated US politicians.
“Both sides don’t seem to understand each other,” Allen said. “Riyadh has underestimated the seriousness of the US response. And the US assumed we had a non-verbal agreement.”
Fatih Birol, Executive Director of the International Energy Agency, described the move as “unprecedented” and “unfortunate” in an interview with CNN International on Thursday.
“They decided to raise prices when the global economy was on the verge of a global recession,” said Birol.
Tensions have not subsided, and officials on both sides have sharpened their criticism of each other in recent days. In one narrative episode, a senior Saudi minister went From defending Biden’s energy strategy to knocking him down.
At the OPEC+ press conference in early October, Saudi Energy Minister Prince Abdulaziz bin Salman praised Biden’s decision to release an unprecedented amount of emergency oil reserves from the Strategic Petroleum Reserve.
“I wouldn’t call it distortion. It was actually done at the right time.” “If it hadn’t been for that, I’m sure things might have been different than they are today.”
Fast forward three weeks and the same Saudi minister sang a very different song.
“People are running out of emergency stocks, they have used it as a mechanism to manipulate markets, but its main purpose was to reduce the shortage of supply,” Prince Abdulaziz said at a conference in Saudi Arabia this week. “However, it is my ultimate duty to explain to the world that losing emergency stock could become painful in the coming months.”
The criticism is noteworthy, especially given that OPEC is clearly manipulating the markets. IIn many ways, by cutting off the supply to support prices.
The risk is that the voltage will turn into a short-for-short-for-short cycle. spherical economic stability, or whatever economic stability currently exists.
Lawmakers on both sides of the aisle have stepped up calls to enact the NOPEC (No Oil Producing and Exporting Cartels) law, which would empower the Justice Department to go after OPEC countries on antitrust grounds. While NOPEC is not new, it seems more possible at the moment than at any point in recent memory. Eurasia Group has identified a 30% chance for NOPEC to become law, and a 45% chance for a diluted version of the bill.
“You can’t overstate how upset so many lawmakers are,” Allen said.
Lawmakers are not only upset, they also know that OPEC is not exactly endearing itself to the electorate.
“This is popular. American sentiment is anti-Saudi. This now has domestic political benefits for American politicians. “This is where we’re at right now,” said Karen Young, senior research fellow at Columbia University’s Center for Global Energy Policy. “It would have been harder to veto NOPEC than in the past.”
Saudi Arabia can respond to the sanctions from Washington with its own harsh steps. exacerbates the conflict.
Saudi officials have specifically warned that the kingdom could sell US Treasury bonds if Congress passes NOPEC, the Wall Street Journal reported this week.
At the very least, draining US debt would create uncertainty in the markets at an already dangerous moment. A fire sale would raise Treasury rates, destabilize markets and increase borrowing costs for families and businesses.
And of course, Saudi Arabia’s own holdings would suffer in such a fire sale.
Saudi Arabia sits on roughly $119 billion in US debt, according to Treasury Department data. world’s 16th largest Treasury bond holder.
Another risk is that Saudi Arabia, the de facto leader of OPEC+, may remove more supply from world oil markets, or at least refuse to respond to future price increases while the West continues to put pressure on Russia.
Further restrictions on OPEC supply will raise gasoline prices and worsen inflation, increasing already high recession risks.
All this explains why a complete breakdown of relations between the US and Saudi Arabia may be the last thing the fragile economy needs right now.
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