What is the aim of Saudi Arabia’s oil decision?

Gilbert Achcar 14 October 2022

Given its overwhelming position in the global oil market, the Saudi role was crucial in the decision taken by OPEC+, which includes non-OPEC oil producing countries, most notably Russia. This decision to reduce oil production in order to maintain prices has caused a major global uproar, particularly in the United States for the indications of US-Saudi relations, rather than for the actual implications on the oil markets. During the months leading up to the meeting, OPEC production was already below the agreed cap due to technical reasons preventing some countries from increasing production, while others, such as the United Arab Emirates, stand willing to increase production after strengthening their extractive potentials.

The most significant role in determining oil prices is not OPEC’s or its expanded version, but the fluctuations of supply and demand in the global market. From this standpoint, OPEC+ is contributing to reducing global oil consumption by leading the global economy to a recession given a number of factors which include for instance the pandemic effect on China and its economy deflating after insisting on full lockdowns. Such a policy is proving extremely expensive with no potential way out, particularly with the Virus constantly mutating and the total lockdown preventing herd immunity from taking grip

In addition to the Chinese crisis, the Russian invasion of Ukraine has a hand in the worsening economic conditions in Europe particularly, besides Russia. The Russian economy benefited from the rise of oil and gas prices after the European boycott, which meant it partially compensated for the war losses and sanctions imposed on Kremlin, with Europe tops the list of those affected by the high energy prices. Further, Europe is in a difficult position as it does not wish to seem to be bankrolling the Russian military, whilst at the same time realising full well that Russia will not fail in finding clients for its energy.

Oil decision favours the Russian interests

black digital device at 2 00 — *OPEC+ oil decisions*

OPEC+ decision favours the Russian interest which is obliged to reduce its production in all cases because of the receding European markets and the technical problems arising from the sanctions. However, what about Saudi Arabia’s interest in this scenario where it played the major role in the decision to reduce production, which implies reducing its own production, being the party which produces the most?

Evidence suggests that the Saudi decision, the architect of which is Mohammed bin Salman, is contrary to its true interests for several reasons. The decision would worsen the global economy’s tendency to stagnate and, in the medium term, would reduce demand due to consumer fear of the economic crisis.

Moreover, Saudi’s attitude has been contrary to that of several decades after the nationalization of its oil industry half a century ago colluding with its international sponsor and ally, the United States. Noteworthy that the US has relied on Saudi Arabia in the conduct of the global oil market in accordance with its own interests. The peak of oil prices was during the war against Iran and Russia in 2014 when Saudi Arabia pressed heavily on Tehran to sign the nuclear deal the following year and increased western sanctions imposed on Russia following its annexation of Crimea and its military intervention in western Ukraine.

Saudi Arabia’s decision in favour of Russian interests that seemingly supports its war in Ukraine has two consequences: first, its decision reinforces the European sentiment that oil dependence is a multifaceted source of damage including great environmental damage and its political implications, given that fuel has become a political weapon in untrustworthy – from the European perspective – hands, more than any time before. This will accelerate European efforts to develop alternative renewable and atomic energy sources, efforts which were driven by environmental considerations and boosted by the Russian invasion of Ukraine, and now in a position to increase even further after the Saudi stand.

However, from the US perspective, the decision has been deemed a challenge to Saudi-American relations and a bias towards the Russian side. Even US president Joe Biden himself has expressed his disappointment in facing more pressure from his party to impose sanctions on Saudi Arabia by withdrawing its military protection. The decision has possible roots back to the US president’s visit to Saudi Arabia a few months ago where he reversed his position in favor of strategic interest in the Ukrainian war at the expense of his moral position regarding the murder of Jamal Khashoggi.

Finally, there are firmly convictions among Democrats that Mohammed bin Salman, with his decision to rise oil prices, actually wanted to enhance the chances of Republicans in the upcoming congressional elections in a month. In fact, Republicans are focusing on high prices attributed to Biden’s economic policy, and they have referred to the Saudi decision as a sign of the US foreign policy failure in addition to the Afghan retreat and the inability to deter Vladimir Putin from invading Ukraine. It is also clear that the current Saudi regime prefers Republicans and strongly hopes that friend Donald Trump will return to the White House.