I wrote a blog titled “And
finally Saudi Arabia bows down before US mantra” on April 10, 2020, where
the bottom-line was that Saudi Arabia has bent to knees before United States. Since
then I wanted to explore what turned Saudi Arabia too feeble.
Now I share with
you the crux of my finding very briefly.
In my opinion, Saudi Arabia was put to its knees after
United States put showed it the details of an agreement in 1945 between
Franklin D. Roosevelt, President of United States and the Saudi King at the
time, Abdulaziz, which defined the relationship between the two countries for
the years to come.
The deal that was struck between the two men at that time
was that the US would receive all of the oil supplies it needed for as long as
Saudi Arabia had oil in place, in return for which the U.S. would guarantee the
security of the ruling House of Saud.
The deal was altered slightly since the rise of the US shale
oil industry. The US also expects the House of Saud to not only supply the US
with whatever oil it needs for as long as it can but also that it will also
facilitate the US shale industry to continue to function and to grow.
President Donald Trump has used this agreement to the US
benefit. He has sensed a lack of understanding on the part of Saudi Arabia for
the huge benefit that the US is doing the ruling family. He went to the extent
of saying that [Saudi King Salman] would not last in power for two weeks
without the backing of the US military. He also made it clear that without the US
protection, either Israel or Iran and its proxy operatives and supporters could
very soon end the rule of the House of Saud.
Trump has also said, “I will do whatever I have to do... to
protect... tens of thousands of energy workers and our great companies,” and
added that plans to impose tariffs on Saudi Arabia’s oil exports into the US
were “certainly a tool in the toolbox.”
Putting tariffs on
Saudi oil rather than Russian oil made a lot of sense from two key
perspectives. First, the US imports around 95% more oil from Saudi than it does
from Russia, so sanctioning Russian oil would have little effect on supply glut
prevailing in the US. Second, it was also a understanding in the US that Russia
was in much better economic shape than Saudi to handle any shocks to its
oil-related streams of revenue.
It is also the fact that Saudi currently provides one of the
few large-scale sources of sour crude to the US, which is essential to its
production of diesel, and to which purpose WTI is less suited. Gulf Coast
refinery system of the US has invested heavily in coking systems and other
infrastructure to better handle heavier crudes from the Middle East in recent
decades.
The other major historical sources are not in a position to
fill the gap, with US sanctions still imposed on oil imports from Venezuela,
Mexican flows unreliable, and Canada’s pipeline capacity to the US not able to
handle anymore exports south until the long-delayed Keystone pipeline is up and
running till 2023.
It was strongly believed that Trump would use the threat of
such tariffs to convince the Saudis that he is unpredictable enough to impose
such taxes, regardless of the short-term economic consequences. As president,
he was required to do something as around 44 million barrels of Saudi crude was
expected to reach the US over the next four weeks. This was around four times
the most recent four-week average, according to EIA records, and it was mostly
due to be delivered to the already overwhelmed Cushing delivery point.
Reportedly, Republican Senator Kevin Cramer of North Dakota,
who advises Trump on energy issues, has been calling on the White House to take
action to stop the very large crude carriers from unloading and several
senators and congressmen have threatened to vote to withhold military aid to
Saudi Arabia.
Keeping in view the burgeoning ill-feeling towards the
Saudis, sources in theUS Administration were desperate to exploit ‘No Oil
Producing and Exporting Cartels Act’ (NOPEC). Pressure was building on Trump to
finally sign off the NOPEC Bill ever since the Saudis announced to increase
output.
The NOPEC Bill would make it illegal to artificially cap oil
(and gas) production or to set prices, as OPEC, OPEC+, and Saudi Arabia do. The
Bill would also immediately remove the sovereign immunity that presently exists
in US courts for OPEC as a group and for each and every one of its individual
member states. This would leave Saudi Arabia open to being sued under existing
US anti-trust legislation, with its total liability being its estimated US$ one
trillion of investments in the US alone.
The would have also entitled the US administration to freeze
all Saudi bank accounts in United States, seize its assets in the country, and
halt all use of US currency by the Saudis anywhere in the world. It would have also
allowed the US to go after Saudi Aramco and its assets and funds, as it is
still a majority state-owned production and trading vehicle, and ment that
Aramco could be ordered to break itself up into smaller, constituent companies
that are not deemed to break competition rules in the oil, gas, and
petrochemicals sectors or to influence the oil price.
The Bill came very close indeed to being passed into a law
in February of last year, when the House Judiciary Committee passed the NOPEC
Act, which cleared the way for a vote on the Bill before the full House of
Representatives. On the same day, Democrats Patrick Leahy and Amy Klobuchar and
– most remarkably – two Republicans, Chuck Grassley and Mike Lee, introduced
the NOPEC Bill to the Senate. Its progress was only halted after President
Trump stepped in and vetoed it when the Saudis did what he told them to do, but
the option is still available for a relatively quick turning it into law.
