The Cradle
US 'coercive diplomacy' with Saudi Arabia
While a carrot may advance US interests infinitely better than a stick at this sensitive juncture in US-Saudi relations, all indications are that Biden will resort to the stick.
May 07 2022
https://media.thecradle.co/wp-content/uploads/2022/05/IMG-20220506-WA0011.jpg
The US cannot budge oil production and prices with this geopolitical line-up blocking its path. So Washington may strike at the weakest link - in Riyadh.
Photo Credit: The Cradle

Some three weeks after the reported meeting of CIA chief William Burns with the Crown Prince of Saudi Arabia Prince Mohammad bin Salman (MbS), the OPEC+ ministerial held a videoconference on Thursday.

The OPEC+ meeting drew satisfaction that “continuing oil market fundamentals and the consensus on the outlook pointed to a balanced market.” The press release issued in Vienna says the ministerial “further noted the continuing effects of geopolitical factors and issues related to the ongoing pandemic” and decided that OPEC+ should stick to the monthly production adjustment mechanism agreed in July last year “to adjust upward the monthly overall production by 0.432 million barrels/day for the month of June 2022.”

Former Wall Street Journal publisher Karen Elliott House says Burns came to Saudi Arabia for a “mating dance” with MbS — namely, the latter must cooperate on a new oil-for-security strategy to “increase production to save European nations from energy shortages.”

Burns’ visit to the kingdom took place just ahead of the fifth round of Saudi-Iranian normalization talks in Baghdad between the Saudi intelligence chief and the deputy head of Iran’s Supreme National Security Council. Iraq’s Prime Minister Mustafa al-Kadhimi who acted as mediator and attended the talks, told state media last week, “Our brothers in Saudi Arabia and Iran approach the dialogue with a big responsibility as demanded by the current regional situation. We are convinced that reconciliation is near.”

In addition, Iranian outlet Nournews, affiliated with the country’s Supreme National Security Council, reported on 24 April that the fifth round of talks on a possible détente was “constructive,” that the negotiators managed “to draw a clearer picture” of how to resume bilateral relations, and that “given the constructive bilateral dialogue so far, there is a possibility of a meeting between the Iranian and Saudi top diplomats in the near future.”

Burns’ mission couldn’t have been indifferent toward the Saudi reconciliation track with Tehran. With the outcome of the Joint Comprehensive Plan of Action (JCPOA) talks in Vienna still uncertain, Iran’s close ties with Russia and China remains a major worry for Washington. And with Tehran’s stubborn refusal to trim its regional policies to suit US regional strategies, Washington has fallen back on its usual default option to resuscitate an anti-Iran front of its regional allies. The US hopes that Saudi Arabia will come on board the Abraham Accords.

Soaring energy prices

Meanwhile, the issue of energy pricing has returned to centre stage. Indeed, high oil prices mean increased income for Russia. Russia’s sales of oil and natural gas far exceeded initial forecasts for 2021 as a result of skyrocketing prices, accounting for 36 percent of the country’s total budget. The revenues exceeded initial plans by 51.3 percent, totaling a whopping $119 billion. The Biden administration’s best-laid plans to cripple the Russian economy are unravelling. Equally, high energy prices is also a domestic issue for Biden who faces daunting elections this Autumn. Above all, unless Europe finds other oil sources, it will continue buying Russian oil.

The Saudi crown price, however, has a different agenda. After ascending to power, he is likely to rule the kingdom for many decades — half a century if he lives to 86, his father’s age. And MbS has been remarkably successful in creating his own Saudi ‘power base’ without US help. His lifestyle changes have been a smashing hit with Saudis 35 and under — 70 percent of the kingdom’s citizens — and his ambition to transform Saudi Arabia into a modern technological leader ignites the imagination of the youth.

Clearly, his refusal to punish Russia and his $2 billion ‘gesture’ toward a new, untested investment fund started by former US president Donald Trump’s son-in-law, Jared Kushner, speak for themselves. MbS has his own reasons for these actions, starting with Biden’s contemptuous reference to Saudi Arabia as a “pariah” state and his refusal to deal with the crown prince in person.

MbS hit back recently by declining to take a call from Joe Biden. Besides the petty stuff, the US restrictions on arms sales to the kingdom; insufficient response assistance to attacks on Saudi Arabia by Yemeni forces; publication of a report into the 2018 murder of Jamal Khashoggi — all these are in play here.

Even if the administration is able to obtain congressional approval for new security guarantees for Saudi Arabia (which is rather problematic), MbS might very well refuse to be swayed, since at the end of the day, high oil prices boost the ailing Saudi budget too.

The paradox is, both Saudi Arabia and Russia are stakeholders in OPEC+ as is evident from the explicit warning to the EU by OPEC Secretary General Mohammad Barkindo last month that it would be impossible to replace more than 7 million barrels per day of Russian oil and other liquids exports potentially lost due to current or future sanctions or voluntary actions.

Given the torrential geopolitical and economic crosscurrents at play here, what possibly unnerves the Biden Administration most is talk of an upcoming visit to Saudi Arabia by Chinese President Xi Jinping. There are persisting recent reports that Riyadh and Beijing are in discussions to price some of the kingdom’s oil sales in yuan rather than dollars, which would indeed mark a profound shift for global oil markets, and help advance China’s efforts to convince more countries and international investors to transact in its currency.

The Saudi explanation for the shift to the yuan is that the kingdom could use part of new currency revenues to pay Chinese contractors involved in domestic mega projects within Saudi Arabia, which would reduce the risks associated with the capital controls Beijing imposes on its currency. But, for Washington, that means certain sensitive Saudi-China transactions in yuan do not appear in the rearview mirror of the western-controlled SWIFT messaging infrastructure, making transaction monitoring unviable.

There are persistent US reports that with Chinese support, Saudi Arabia may be constructing a new uranium processing facility near Al Ula to enhance its pursuit of nuclear technology. Riyadh’s generous $8 billion in financial support for Pakistan, unveiled this week, will almost certainly raise hiccups in Washington.

Saudi Arabia is a central pillar of China’s Belt and Road Initiative (BRI) and ranks in the top three countries globally for Chinese construction projects, according to the China Global Investment Tracker, run by the American Enterprise Institute. Suffice to say, the CIA chief’s call could not have been for a friendly chat with the Saudi crown prince.

The views expressed in this article do not necessarily reflect those of The Cradle.
Columnist