The relationship between the Kingdom of Saudi Arabia (KSA) and the United States (US) has further tattered due to recent geopolitical developments. The 2 countries have enjoyed friendly diplomatic relations for over 70 years based on oil in exchange for security. However, things have been heating up in recent years. Especially after OPEC (Organization of Petroleum Exporting Countries) announced to cut oil supplies ahead of winter, US-Saudi Arabia relations have come under keen observation.
US-Saudi Arabia Relations on the Verge of Breakdown
The US has accused KSA of coercing other OPEC nations into cutting oil supplies to favour Russia in its war with Ukraine. On the other hand, KSA established a 20 billion USD investment fund with China in 2017 with an aim to link Saudi Vision 2030 and the Chinese Belt and Road Initiative. China has become increasingly involved in the Middle East and will play a significant role in KSA’s economic development, including the futuristic city project, NEOM. Considering the love lost between the US and China, KSA has repeatedly downplayed the situation by claiming that its relations with both rivals were not mutually exclusive. Whereas its evolving relationship with Russia has particularly worried the West, igniting debate on the future of US-Saudi Arabia relations.
KSA is also the biggest customer of American weapons and signed an arms deal in 2017 with the US worth 110 billion USD, which will mature up to 350 billion USD in 10 years. Political analysts and critics speculated that the US could break this deal if KSA kept getting closer to its adversaries. Recently, threats have been coming from the US Congress about freezing the weapon sales and stopping the security association with KSA for choosing Russia over US interests. However, the Kingdom has rejected the accusations that by reducing oil production, it was aligning itself with Russia for Ukraine war. KSA has maintained that it was a business decision made unanimously by OPEC.
How Cutting Oil Supplies Favour Russia?
The oil cartel led by Saudi Arabia will reportedly slash production in November, driving up the prices. This has raised global concerns due to an already soaring inflation and the war going on in Ukraine. OPEC, which also includes Russia, has agreed to slash oil output by 2 million BPD (barrels per day), despite pressure from the US to produce more. The group stated that the decision was based on “uncertainty” surrounding the global economy and oil markets.
The move came 5 months after European Union (EU) decided to ban Russian oil imports by the end of 2022. EU planned to punish Russia for its invasion of Ukraine fueled by revenues from oil exports. However, higher oil prices due to reduced production benefits OPEC members, including Russia, to keep profits afloat. The US said it was disappointed by KSA’s “shortsighted” decision, which will allow Russia to continue funding its war in Ukraine.
After OPEC’s announcement, the price of Brent crude oil immediately increased by 1.7% to 93.29 USD a barrel. In the beginning of 2022, it was around 79 USD and rose up to 127 USD by March, approximately 2 weeks after Russia invaded Ukraine. It took 7 months for the price to drop in between the bracket of 80s before it picked up pace in October.
The rising prices and less oil supply are devastating news for developing countries, which are already troubled by the ever-appreciating dollar. It can also be problematic for EU countries due to the price cap on Russian oil imports. Russian President Vladimir Putin has warned to withhold exports to countries that apply this cap. It will greatly obstruct global efforts to deplete Russia’s war chest.
KSA and China Relationship
Strained US-Saudi Arabia relations pose an opportunity for China to get closer to the most influential country in the Middle East. For over 3 decades, economic, political, and military relations between China and KSA have strengthened. Saudi Arabia is China’s biggest trading partner in the Middle East and crude oil supplier. There are even reports that China is in talks to buy shares in Saudi Aramco, the world’s largest oil-producing company. Such a move would further signify KSA’s realignment with China away from the US. For China, KSA is a means for growth amidst uncertainty surrounding oil in developing markets. Saudi Aramco can make sure China never runs out of oil, even if the rest of the world does. KSA is also considering allowing China to pay for oil in its own currency, the yuan, rather than the costly US dollar. This could create a parallel payment system globally where the Chinese yuan would be as valuable as the USD. Russia could also utilize this system to bypass economic sanctions.
Sino-Saudi ties have evolved in recent years from only energy trade to investments in major sectors, including communication, technology, infrastructure, and weapons. In Saudi’s plan to diversify its economy and reduce dependence on oil revenues, China is playing a major role. There are plenty of innovative plans in Vision 2030 strategy, including beaches and resorts, to develop tourism and introduce liberal reforms in a pivot away from its interpretation of Islamic traditions. KSA’s megacity project, NEOM, would also drop Sharia Law and introduce its own rules and regulations to attract investors and citizens. The construction has already started, with major contracts being carried out by Chinese companies. It is a 500 billion USD project which cannot be achieved without global support, especially from Chinese investors.
China’s investment bank said that Chinese tech companies were better equipped than the US giants, like Facebook and Google when it comes to making a profit in KSA’s internet industry. The most important point due to which Saudi has chosen Chinese businesses in their ability to work with the government. Unlike US companies, the Chinese feel more comfortable working closely with the state and delivering upon their wishes. Even though some American and Indian companies are also involved in KSA’s economic development, Chinese companies will oversee larger projects such as tunnel construction with lucrative outputs. Another reason for Saudi to work closely with China is Beijing’s experience in creating new cities and special economic zones from scratch. KSA hopes NEOM to be as successful as Shenzhen, which became an economic zone in 1980. It is predicted that by the end of 2023, it will surpass the entire Hong Kong in GDP. Chinese authorities have already been investing hundreds of billions of dollars into the NEOM project.
Will The US Stop Selling Weapons to Saudi Arabia?
It is yet to see how the Kingdom’s budding relationship with China would scar US-Saudi Arabia relations as they have over Russia. US Congress is already pushing the Biden administration to reduce military business with KSA in the face of the OPEC decision. The US believes that Saudi has betrayed it by siding with Russia. However, the Kingdom rebuked the allegations stressing that it has taken nobody’s side in any international conflict. It continued that oil production was cut by the agreement of all OPEC members, and it was not politically motivated against the US. KSA also asserted that it only wanted to preserve strong bonds with all friendly nations. While rejecting dictates from the US, it advised to stop distorting its goals of “protect the global economy” from the volatile oil market.
In case Saudi Arabia fails to get arms from the US, it already has China as its supplier. The arms trade between the two countries has seen exponential growth in recent years. According to reports, China’s weapon sales to KSA increased by 386% between 2016 and 2020 as compared to 2011-2015. Much of this is credited to the trade of armed drones, which the Kingdom was unable to buy from the US. In 2017, China and KSA signed a joint venture to design and build drones within the Kingdom. Even though the US still remains the top provider of manned aircrafts to Saudi Arabia, it could still be replaced in favour of Chinese unmanned aircrafts in large quantities. However, it is more likely that the US needs KSA rather than the other way around.
The US could lose a lot more from a damaged relationship with the Kingdom. For starters, KSA is the gateway into the Middle East for the US. Losing the oil giant can have a damaging impact on the global credibility of the US. Some critics also highlight the timing of the OPEC decision to slash oil production. It can be seen that these cuts have come slightly ahead of the US elections on November 8. According to some critics, the OPEC move was carried out deliberately to shape Joe Biden’s future as the US president. Many speculations have suggested that Mohammed Bin Salman would like to see Donald Trump back, so he was trying to show that Democrats had failed to keep up their friendship with the Kingdom.