/ world today news/ Saudi Arabia has threatened the US with “serious economic consequences” if the US president tries to punish the kingdom for the rise in oil prices. This happened back in the fall. Since then, the Saudis have continued to do what the US strongly dislikes, but meekly tolerate the antics of the Arabs. What is the US afraid of?
Saudi Crown Prince Mohammed bin Salman Al Saud has threatened the US with “serious economic consequences” if Biden tries to punish the kingdom for rising oil prices, The Washington Post reported, citing a classified document.
President Joe Biden has threatened Saudi Arabia with some serious consequences for OPEC’s decision, along with Russia, to cut oil production last October. The cartel members then agreed on the sharpest output cut since 2020 by 2 million barrels per day. In response, the crown prince threatened to fundamentally change relations between the United States and Saudi Arabia and cause significant economic damage to the United States if it did take such measures, the newspaper said.
Since then, Saudi Arabia has initiated two more OPEC+ oil production cuts, ignoring the US, which has insisted that it not raise oil prices and not engage with Russia. Saudi Arabia independently makes decisions about its own economy, and hardly anyone, including the United States, can teach it to do so, Kremlin spokesman Dmitry Peskov said.
“Saudi Arabia has realized that it now has more opportunities to act independently without looking to the US. It’s not yet the case that the Saudis have severed all ties with the Americans, but Saudi Arabia can afford more now than it did in 1991, 2001 or 2011,” commented the lead expert at the National Energy Security Fund, a researcher at Financial University under the Government of the Russian Federation Stanislav Mitrakhovich.
Meanwhile, the United States has not translated its threats against Saudi Arabia into actual action. They are still trying to negotiate with the Saudis. On June 7, US Secretary of State Anthony Blinken held talks with bin Salman in Saudi Arabia on a wide range of issues, from Iran to oil prices.
What economic trump cards do the Saudis have up their sleeve to limit American pressure and act independently without regard to the United States?
First, Saudi Arabia, as the largest oil country, could seriously undermine and even destroy the hegemony of the petrodollar. To do this, it is enough to abandon the use of the dollar in the oil trade. And Riyadh has already begun to move in this direction, demonstrating its power to the United States. In December, China signed the first contract with Saudi Arabia to supply oil in yuan instead of dollars. China is encouraging other Arab countries to switch to the yuan.
Ironically, it was Saudi Arabia that got the whole world addicted to petrodollars in the 1970s. Then, in exchange for security from the US, the Saudis started selling their oil for US currency and created this strong link between oil and the dollar.
“After the Yom Kippur war in the Middle East, there was an oil crisis in the US. Solutions to this 1973 crisis have had conflicting effects. On the one hand, OPEC has shown its strength. And on the other hand, all this ended in a transfer to an international trade system that is completely controlled by the Americans. And we are only now starting to move away from that, the restructuring process is going very hard,” says Mitrahović.
Now, if it wants, Riyadh can start the reverse process: first it will transfer its trade to national currencies, then it will call on OPEC members to follow the same path. The kingdom could easily become an infectious example for other oil sellers.
“I think Saudi Arabia is signaling to the US that it will gradually move away from the US financial infrastructure: trade is in dollars, contracts are in dollars, financial transactions are in dollars, stock market pricing is in dollars. But gradually the US will lose control over the oil market and the exchanges controlled by the US authorities, which can regulate the inflow and outflow of dollars there,” says Mitrachovic.
“If we accept a complete rejection of the dollar by Saudi Arabia, then the United States will have to negotiate in all areas not from a position of pressure, but from a position of compromise and concessions,” says Alexander Timofeev, associate professor of the Department of Informatics at the Russian University of Economics. Plekhanov.”
At the same time, Saudi Arabia has no serious concerns that the US will refuse to buy oil from them. The Americans used to buy several million barrels per day of Arab oil, and now the Saudis are supplying up to half a million barrels per day. To understand: just recently, Saudi Arabia decided to cut production by 1 million barrels per day, which is twice the supply to the United States.
The United States has ceased to be a significant market for Saudi Arabia, now the largest buyer of its oil is China. “For a long time, the economies of China and India were considered backward. However, this has not been the case for a long time. The Chinese and Indian markets are more than a billion cars. This means that the volume of fuel demand in these countries exceeds the demand in the US, Japan and others like them. What is the point of the Saudis transporting oil products over long distances to the United States, when they can fully cover their export needs through sea deliveries through the Indian Ocean and the South China Sea with the ability to make all payments in national currencies?” asks Timofeev.
But for the US, Saudi Arabia is important. And it’s not even so much about the Arab petroleum products that power thousands of gas stations in the US and Japan. For Washington, the influence of the Arabs on world prices is more important. The price of gasoline on the American market depends directly on world prices: the higher they are, the more ordinary Americans and businesses have to pay for gasoline. The level of motorization in the country is extremely high, so any rise in oil prices on world markets is reflected in the US. After the price of gasoline, every product becomes more expensive, since the main means of logistics are cars.
This whole expensive oil situation is highly irritating to both the Biden administration and the US Federal Reserve as it prevents them from fighting record inflation. The US Federal Reserve raises interest rates, makes borrowing more expensive, which slows down the economy, and Saudi Arabia, in coalition with Russia and other OPEC members, take and cut production, which pulls the price of oil up, and that momentarily neutralizes all efforts of the United States to fight inflation.
American motorists are dissatisfied, and this is a serious electorate, without whose support it is impossible to maintain power.
Saudi Arabia, on the contrary, needs expensive oil. “By pursuing a policy of sanctions against Russia, the American leadership indirectly affects all participants in the oil market. The consequences of intervention in oil pricing have a negative impact on the countries of the Middle East, as their government budget is 90% dependent on revenue from raw materials. Saudi Arabia needs an oil price of at least $80 to meet its budget programs. Therefore, it is logical that, in addition to the latest decision of OPEC +, the Saudis plan to reduce production and transfer even more payments to currencies alternative to the dollar,” says Tatiana Skril, associate professor of the Department of Economic Theory of RIU “Plekhanov”.
Second, Saudi Arabia has another economic trump card up its sleeve, which is the huge investment it has made in the US economy. According to Mitrahovic, “Saudi Arabia could reduce dollar investment in the American economy and even move its assets out of America, from refineries to its bank accounts and yachts in ports.”
Last year, the Saudi crown prince warned that the country could reduce investment in the United States. According to him, the kingdom’s investments in the American economy reach 800 billion dollars.
Third, the Saudis could also harm the United States through closer alliances with Russia, China, and other developing countries. “Saudi Arabia may consider joining the BRICS or the SCO or participate in other projects related to the construction of an alternative financial system,” Mitrahovic said.
For example, Saudi Arabia was reported to be in talks to join as a member of the BRICS New Development Bank. The main task of this bank is to finance infrastructure projects in the BRICS countries and other developing countries (the bank has a total of eight countries). In 2021, new members of the bank became Bangladesh, Egypt, UAE and Uruguay.
In May, Russia proposed the creation of a new payment system in SCO and BRICS currencies. The current trade turnover between Russia and China of $200 billion is not the limit, but deepening trade relations is impossible without creating a completely new payment infrastructure, says analyst Igor Shuvalov.
“If Saudi Arabia offers the OPEC+ alliance in cooperation with BRICS+ a trade currency, then the US will face the biggest increase in gas station prices. Gasoline in the US will depend on the exchange rate of this trade currency and the volume of “leftovers” of raw materials after deliveries to China and India,” says Timofeev.
Translation: V. Sergeev
Subscribe to our YouTube channel:
and for the channel in Telegram:
#Saudi #Arabia #hurt #ways
