Poor, oil-importing countries like Pakistan ought to wish US President Joe Biden well as the cold calculus of the market forces him to abandon his campaign promise of making Saudi Arabia “the pariah that they are” and go request Crown Prince Mohammed bin Salman, whom he recently said he wouldn’t talk to directly because of protocol, to kindly increase production and cool oil prices.
This is just another one of those things that Nato did not calculate properly when it provoked Moscow into invading Ukraine. Now there’s not just the high demand from the end(ing) of the pandemic that’s forcing up commodity prices, especially oil, there’s also the war premium as threats, sanctions, and novel currency swaps freeze supply chains, particularly in the heart of Europe which, incidentally, is also the heart of Nato — just not its pocket, which lies “across the pond”, in America.
Russia was supposed to duly fold under the pressure of all the sanctions, not to mention censure from the SWIFT international financial network. Instead it’s selling its gas in rubles, giving its currency a shot in the arm, and making something of a fortune; a natural hedge, of sorts, as sanctions indeed begin to bite.
Now runaway inflation in the US – people are paying more than $5 a gallon at the peak of the summer driving season and the eve of midterm elections – is forcing the Fed to engineer a recession because real interest rates are deep in negative with the Fed funds rate between 1.5pc and 1.75pc and inflation above eight-and-a-half percent. That’s why Biden would rather take some stink from human rights groups for abandoning Khashoggi, and all that, than have too many angry consumers, another name for voters, at the pump.
Biden will indeed meet MBS next week, and that doesn’t only mean that the latter’s slate has been wiped clean, it also means that Riyadh’s status as the central bank of black gold is restored, enabling it to punch above its weight once again and, this time, even make Washington dance to its tune. Of course the White House has said that the visit has nothing to do with oil and production statistics, but everybody knows, and the market confirms, what’s really happening.
The only problem is that the kingdom has been drifting closer to Russia all the time the Americans have been making it the butt of all jokes on their campaign trails. And when Joe Biden was rallying his support base with promises of a muscular foreign policy, Vladimir Putin was making just the right moves on the Middle East chess board. Why do you think Saudi Arabia and the UAE didn’t condemn the war at the UN, much to the shock of the US?
If the runup to the visit is any guide, President Biden will soon find out that the OPEC+ arrangement, where Russia leads a dozen non-OPEC members in the pact, is working out rather nicely for all parties concerned, especially the two leaders, which happen to be Putin’s Russia and MBS’s Saudi Arabia. Besides, the kingdom couldn’t ramp up production by much right now even if it wanted to. It’s barely keeping up with its mandated 11 million barrels per day, and it has no reason to burn its own potential profits, exhaust its strategic reserve, and bury OPEC+ just because Biden’s feeling the pinch at the pump.
This has the makings of an epic, pivotal moment in US-Saudi history. If Riyadh really disappoints Biden and leans towards Moscow in the new order that the Ukraine war has forced international geopolitics into, then the historic security-for-oil deal reached between President Roosevelt and King Abdulaziz on an American warship in the Suez in 1945, which has also controlled Saudi’s fabled Riyal Politik in the region for the good part of a century, is as good as gone.
And so MBS has been thrust to the centrestage at a crucial moment in history. It says a lot that just last month the Saudi energy minister, Prince Abdulaziz bin Salman, made a surprise visit to a Russian energy forum and hinted that OPEC+ might continue even after it officially expires at the end of the year.
He also said that Saudi-Russian relations were “as warm as the weather in Riyadh”. All Biden needs to do is google the temperature there to get a proper understanding of this; and also know what the “bro handshake” between Putin and MBS at the Buenos Aires in 2018 was all about.
Copyright Business Recorder, 2022