Why US, others are resetting ties with S Arabia

Luv Puri

Journalist and author

Fearing a domestic political backlash because of inflationary pressures, US President Joe Biden has announced a trip to the Kingdom of Saudi Arabia (KSA), which is being seen as a U-turn in terms of the Biden administration’s engagement with 36-year-old Saudi Prince Mohammed bin Salman (MBS). The ties between the two countries had hit a low as the US President had been critical of the KSA’s involvement in Yemen and the alleged role of MBS in the murder of journalist Jamal Khashoggi.

The KSA’s decision to extend a ceasefire in Yemen and the OPEC (Organisation of the Petroleum Exporting Countries) announcement that it would increase oil production changed the frosty dynamics between the ruling Democratic Party’s leadership in the US and MBS. The recent developments provide some key lessons in understanding the current geo-political landscape as within the global south and emerging economies, the KSA remain an important player both as a traditional supplier of crude oil as well as an investor. (In India’s case, it is the fourth largest trading partner as more than 18 per cent of India’s crude oil imports come from the KSA and it has been a critical partner in the security realm, particularly counter terrorism, for more than a decade now).

The Russian invasion of Ukraine impacted the calculations of many countries, including the US, with regard to energy security. The banning of imports of Russian crude oil, including the European Union decision to ban 90 per cent of Russian oil by the end of this year, has not only led to oil shortages but also caused panic. It has demonstrated that the role of the KSA, the second largest oil producing country, cannot be ignored. The much-celebrated US self-sufficiency in crude oil and gas achieved through fracking has come across as exaggerated. Fracking, practised in the US states of Texas and New Mexico, is the technique of creating fractures in rocks and rock formations by injecting specialised fluid into cracks to force them to open further, resulting in more oil and gas to flow out of the formations. The adoption of this technique resulted in the US becoming a net exporter rather than an importer of crude oil and gas. The total domestic production of crude oil reportedly jumped from 5.4 million barrels a day in early 2010 to a record 13 million at the end of 2019.

Geopolitical analysts were quick to emphasise the various consequences of the development. One of the major potential ramifications mentioned was the possible reorientation of the US relationship with the Middle East, including the KSA. The assessment was that as the US dependence on the Middle Eastern crude oil became marginal, this could radically alter the geo-political priorities of the US in the region. A host of reasons, partly related to structural economic realities, technical and pandemic, have come together to point out that this analysis was faulty. Fracking required consistent economic investments which have been hard to come by since 2019 and were further exacerbated after the onset of Covid-19 in March 2020.

Russia's invasion of Ukraine was the last straw on the camel’s back. Notwithstanding various requests by the US administration, an increase in the crude oil supply by the oil producers is not even sufficient to meet the US demand, not to speak of Europe. In addition, because of various domestic regulations on shipping the internal production will not necessarily meet the domestic demand. Resultantly, all economies, including the US, are facing inflationary trends because of the shortage of crude oil supply and other infrastructural bottlenecks.

It is in this equation that the role of the KSA has become critical. Apart from the UAE, the KSA is one of the two countries that has reportedly the major share of OPEC's spare capacity. The KSA initially hesitated to increase the production and then later in consultation with OPEC agreed. And there is little doubt who has gained the maximum from the global crude oil shortage. The crisis has come as an opportunity for MBS to re-position himself on the world stage.

Early on in his career, MBS had taken an interest in reshaping the KSA’s economy with the intention of diversifying its economy. After taking over control in April 2015, he professionalised the Saudi Aramco management, officially the Saudi Arabian Oil Company. He had launched its IPO in 2019, though after a rocky start Aramco has been able to establish itself as the most valuable listed company in the world. It is still not listed on NYSE, though in May it reportedly surpassed tech giant Apple as the world’s most valuable company.

The US is not the only player that had to revise its strategy toward the KSA. Turkey is another country as the KSA-Turkey animosity had acquired topical salience in the last few years. Turkey’s decision to deploy more troops in Qatar, which was facing a blockade from the KSA, exacerbated the tensions between the KSA and Turkey. In July 2020, Turkish President Erdogan visited Qatar to further cement the strategic relationship between the two countries. The KSA and Turkey followed divergent foreign policy goals in many places.

The tensions had become more apparent after the killing of Khashoggi in the KSA’s Istanbul consulate in 2018. The facts presented by the Turkish authorities hinted at the direct involvement of MBS in the killing. A trial has already started in Turkey that accused 20 KSA citizens in absentia; the KSA has declined to extradite them. There was a counter-reaction sweeping within the KSA as the leadership has decided to refer to the Ottoman rule over its territory in the context of colonialism and revise textbooks. In Riyadh, a sign bearing the name of the Ottoman sultan, Suleiman the Magnificent, was reportedly removed from one of the main streets.

With a tottering domestic economy as the inflation rate is reportedly above 70 per cent and the Turkish lira losing 44 per cent of its value against the dollar in 2021, it was difficult for the Turkish President to continue to grandstand. Turkish exporters reportedly complained their goods were stuck at Saudi customs for longer than was necessary. Erdogan has already visited the KSA in April, seen as an attempt to repair the KSA-Turkey ties, which was followed by MBS’s visit to Turkey on June 22. Qatar-KSA tensions have also ceased as there is a restoration of diplomatic ties between the two.

To sum up, the KSA’s clever positioning, under the de facto control of MBS, to leverage its assets in the current crude oil crisis has forced the US and others to re-establish ties with it. This only proves that the magic of black gold has far from waned and it will continue to impact geopolitical undercurrents.

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