Reportage by Nadine Ibrahim and Abbas Al Lawati, as part of the CNN Middle East newsletter. To subscribe to the newsletter (Click herea)
Abu Dhabi, USA (CNN) – The Saudi energy minister once said the kingdom “derives its happiness from keeping everyone alert”.
This is probably how White House officials and Democratic politicians felt when the kingdom led OPEC to announce a massive cut in oil production this week, causing inflation fears just five weeks before the midterm elections. .
On Wednesday, the Organization of the Petroleum Exporting Countries, the oil alliance led by Saudi Arabia and Russia, agreed to cut production by 2 million barrels a day, double what analysts expected, in the largest cut from the COVID-19 pandemic. It appears that the intense pressure campaign launched by the United States to discourage its Arab allies from reducing before the resolution fell on deaf ears. Russia is already pumping under the OPEC + ceiling and Gulf producers will handle most of the cuts.
Saudi officials insist the kingdom must put its economic interests ahead of political considerations related to US domestic politics.
“We are primarily concerned with the interests of the Kingdom of Saudi Arabia,” Energy Minister Prince Abdulaziz bin Salman Al Saud said Wednesday in an interview with Saudi television, adding that the government had “an interest in being part of the growth. of the global economy “.
Prince Abdulaziz stressed that the organization must be proactive as Western central banks move to address inflation by raising interest rates, a step that could increase the chances of a global recession, which in turn could reduce demand. of oil and push the price down.
“This cut appears to be a proactive measure in hopes of avoiding a price collapse that would require a sharp cut as the US Federal Reserve continues to raise interest rates,” said Eileen Wald, a non-resident colleague at the Atlantic Council in Washington. , DC.
Due to its heavy reliance on oil revenues, the Saudi economy has a history of falling victim to boom and bust cycles in the oil market, where high prices lead to cash flow followed by recessions. Experts say the kingdom is trying to protect itself from that possibility.
“Saudi Arabia is trying to prevent a repeat of what happened in 2008, when the collapse of the market plunged the global economy into a recession and oil prices suddenly plummeted, which requires emergency action from part of OPEC, “Wald said.
Analysts also say Saudi Arabia cannot afford to drive oil prices below a certain level for budgetary reasons.
This year, the kingdom is expected to record its first budget surplus after eight years of deficits caused by low oil prices and the COVID-19 pandemic.
For its budget to break even, global oil prices would have to hover around $ 79 per barrel, according to the International Monetary Fund. Last month, prices dropped to $ 85 a barrel from $ 139 just seven months ago. This was a warning sign for Saudi Arabia and other oil exporters, who depend on oil for most of their income.
“But the Saudis don’t just want to balance the accounts, they want to ensure a steady flow of surpluses,” said Robert Mogilnicki, a senior fellow at the Arab Gulf States Institute in Washington, adding that the kingdom “would like to see prices approach. $ 90 “level.
Saudi Arabia has the lowest cost of extracting oil in the world, around $ 3 per barrel. This means that the vast majority of the income earned from each barrel goes to its coffers. This money is needed to finance everything from futuristic trillion dollar desert cities to huge government salaries, despite the introduction of new taxes in recent years and attempts to diversify the economy.
Omar Al-Obaidli, Director of the Department of Studies and Research of the Bahrain Center for Strategic, International and Energy Studies (Derasat), said: “The high price [المطلوب لتحقيق التوازن في الميزانية] This is due to the substantial expenditure on public services, investments in infrastructure, the public sector … “, adding that” traditional tax instruments are largely absent, in particular the personal income tax “.
“It is trying to have a diversified and stable source of income for the government, because unstable public finances lead to major upheavals in the economy,” Al-Obaidli added.
However, the Democrats reacted fiercely, with politicians calling Saudi Arabia’s move an act of hostility against the United States for the benefit of Russia by filling its coffers with petrodollars while declaring war on Ukraine.
“What Saudi Arabia has done to help Putin continue his cowardly and cowardly war against Ukraine will be long remembered by Americans,” Senate Majority Leader Chuck Schumer, a Democrat, said Friday.
The Biden administration reacted quickly. White House spokeswoman Karen-Jean-Pierre released a statement on Wednesday stating that “it is clear that OPEC + is aligned with Russia.” On Thursday, Secretary of State Anthony Blinken said the United States was “examining a series of responses” to the Saudi move, adding that the White House was “consulting closely with Congress.” Some Saudis describe the reaction as “hysterical”.
The Biden administration could now provide support for a bipartisan “NOPEC” bill that could expose OPEC + members to antitrust lawsuits by lifting immunity from the union’s national oil companies.
“The response from Washington’s political circles has been overblown,” said Mohamed Al-Yahya, a researcher at the Hudson Institute in Washington, DC. He added that “Saudi Arabia is primarily concerned with ensuring that OPEC + remains apolitical and focuses on technical issues,” he said.
