Saudi Arabia has decided to side with Russia and spurn cries of United States for help as the Ukraine crisis sends the price of oil sky high even though it is the only country with sufficient spare oil production to stop the spiraling to its highest level in eight years.
Saudi Arabia, Russia, and the United States are the world’s top three oil exporters, supplying collectively 30% of world demand. But Saudi Arabia is the only one with the capacity to increase production quickly, by as much as two million barrels per day, more or less immediately.
The Saudi government has come under increasing pressure from US President Joe Biden to use its leverage to lower prices. But the Saudi de facto ruler, Crown Prince Mohammed bin Salman (MBS), has just re- committed to working with Russia to keep them high. Prices have reached over US$100/barrel; up dramatically from the onset of the coronavirus pandemic two years ago, when prices at one point in April 2020 fell below zero.
The crown prince clearly feels he owes nothing personally to President Biden, who has refused to talk to him due to their falling out over the former’s involvement in the assassination of the prominent Saudi journalist Jamal Khashoggi.
Saudi Arabia has shown less and less interest in cooperating with the United States on oil matters as it has become a rival oil exporter to the Saudi kingdom. The US companies presently export around three million barrels a day as compared to Saudi Arabia’s 6.8 million barrels. But they currently produce roughly a million barrels more because the Saudis deliberately limit their output to keep upward pressure on prices.
On the other hand, oil has brought MBS and Russian President Vladimir Putin closer than ever before – at least on oil matters. Saudi Arabia and Russia each lead a group of oil producers that have figured out how to work together to keep prices high. The former heads the 13-Member Organization of Oil Exporting Countries (OPEC) and the latter a grouping of ten non-OPEC producers. Together, they are referred to as OPEC+ Plus.
The Saudi prince’s siding with Putin over Biden has also been reflected in Saudi silence on the Russian invasion of Ukraine. This may be partly explained by Saudi Arabia’s own invasion of neighboring Yemen. Both leaders have said their action was motivated by historic ties and national security concerns.
At an emergency meeting Wednesday, the 23 producers voted to stick to their plan to increase their collective production by only 400,000 more barrels a day each month. By this they signaled no interest in seeing prices fall or in coming to the rescue of Western European nations facing a drop in their Russian oil imports, which account for about 30% of their total consumption.
When it comes to oil, US-Saudi relations have turned from being more or less cooperative to outright antagonistic as the US companies have developed new methods of extracting oil and gas from shale deposits known as fracking.
This has seen US crude oil production shoot up from 5.2 million barrels a day in 2005 to more than 12 million barrels just before the pandemic cratered the world economy in early 2020.
This happened just as Saudi Arabia and Russia were in a standoff over increasing production. In a power play, the Saudis decided in March of that year to swamp the market with more oil to force its will on Russia, increasing their production from 9.7 million barrels a day to 12.3 million.
At the same time, they decided to try to put those US companies involved in fracking out of business. In March 2020, they hired twenty supertankers carrying 40 million barrels of oil to the United States where it was dumped on an already saturated market. Its effect was dramatic.
On April 20, 2020 the price for a barrel of oil on the New York Mercantile Exchange actually fell to negative US$37.63, a theretofore unheard of low. The oil dump plus the pandemic-induced recession achieved the Saudi objective, scores of small fracking companies went out of business and US production dropped by more than two million barrels a day.
Biden even made a rare phone call to King Salman in early February to plead his case for more Saudi oil.
Ever since, the Saudi crown prince and his oil minister, Prince Abdulaziz bin Salman, who is his half-brother, have chosen to work with Russia and OPEC+ Plus over heeding any pleas for help from the White House. Even before the Ukraine crisis, Biden was pressing Saudi Arabia to open up its oil spigot to help relieve the ever-rising price of gasoline in the United States – one of the main causes of high inflation helping to undermine his standing in the polls. Biden even made a rare phone call to King Salman in early February to plead his case for more Saudi oil. According to the White House account of their conversation, the two leaders committed to ensuring the stability of global energy supplies.
A week later, the Saudi Oil Minister made clear his country was sticking to the agreement first worked out in July 2021 among the 23 members of OPEC+ to slowly only restore their monthly collective production at the rate of 400,000 more barrels a day. This agreement has been renewed again and again ever since.
At its meeting which lasted just 15 minutes, OPEC Plus issued a statement washing its hands of any responsibility for spiraling oil prices. It declared the oil market well-balanced and blamed the volatility in prices on current geopolitical developments. There was no mention of Ukraine.
