Filenews 31 October 2022
By Javier Blas
Prince Abdulaziz bin Salman was disgusted. Saudi Arabia's energy minister, the focus of fierce criticism in Washington since leading the OPEC+ cartel to cut oil production this month, said he constantly hears: "Are you with us or against us?" The kingdom, however, does not choose sides, he told the "heads" of Wall Street last week in Riyadh. "Is there room for 'Are we with Saudi Arabia and with the people of Saudi Arabia?'" he asked rhetorically.
If putting one's country in the foreground is considered rude, Prince Abdulaziz - son of King Salman, half-brother of Crown Prince Mohammed bin Salman - warned that he would have no choice but to be rude. "I am pro-Saudi Arabia," he said.
It was the dominant message at the kingdom's annual Future Investment Initiative conference – a message that is of great importance to everyone as oil approaches the $100-a-barrel barrier.
A turn that had been prepared for years
In talks with senior members of the Saudi royal family, officials and local businessmen, it becomes clear that Riyadh is embarking on what I would call the energy, economic and foreign policy agenda "Saudi Arabia First." This is a shift that has been under preparation for many years and which will have consequences for the rest of the world, mainly through oil prices, but also when it comes to shaping diplomacy in the Middle East and combating climate change.
The signs have been around for some time. Earlier this year, Prince Mohammed, who runs the kingdom's day-to-day affairs, said he wasn't particularly interested if US President Joe Biden understood his approach. "It's up to him to think about America's interest," he told The Atlantic. What was not said? MBS, as Prince Mohammed is known, is for his part focused on the interests of the Saudis.
What I heard last week in Riyadh is the manifestation of this line of thought: a bolder, more determined and ambitious kingdom, which is still allied with America, but at the same time freed from the "burdens" of an almost 80-year relationship. It is a country that is now more focused on Asia and its top oil customers - China, India, Japan and South Korea. Together, the four countries account for 65% of Saudi Arabia's total crude exports.
Winner
Amid a turbulent world, shaped by the Russian invasion of Ukraine and the highest inflation in 40 years in America and the United Kingdom, the Arab kingdom has emerged as one of the few economic and political winners. Saudi Arabia's economic growth is the strongest within the group of 20 major economies (G20) and the country is full of cash.
Even after the recently announced OPEC+ production cut, Saudi Arabia's oil production will hit its highest annual average, at 10.7 million barrels per day in 2022. Based on oil prices and production to date, gross annual oil revenues are expected to rise to nearly $400 billion, just below the record set in 2008, when oil prices hit an all-time high.
And yet, far from the Ritz Carlton Hotel, where the annual "Davos in the Desert" conference took place, and the financial districts of Riyadh, such as Al Olaya where bankers live, Saudi Arabia is a relatively poor country.
Its GDP per capita was $23,500 in 2021, far behind the United Arab Emirates' $45,000 and Qatar's $68,000. With the country's population growing by about 600,000 people each year (it is projected to reach 36.2 million in 2022), Riyadh needs to run hard just to maintain this level, let alone increase it.
This is a key reason behind the 'Saudi Arabia first' policy. One banker, with decades of experience in the country, summed it up to me as follows: 'They just need the money, they really need it - and that means high oil prices'.
Past
In the past, Riyadh has been willing to accept lower oil prices, boosting production - or delaying cuts - to Washington's advantage. No more. With the economic outlook uncertain, he would prefer to make the mistake of offering too little rather than too slow. If he is going to make a mistake, let it result in higher, rather than lower, oil prices. Mohammed al-Jadaan, Saudi Arabia's finance minister, told me that Riyadh was just doing what the others within the G20 traditionally did - taking care of themselves first.
"Look at the U.S. federal reserve: the Fed is raising interest rates, it's affecting everyone else, but we understand that this is a domestic issue, they have to deal with inflation," he said.
Saudi officials find it difficult to say they don't have a specific honor target. From their actions it becomes clear that Riyadh wants to keep Brent crude as close as it can to $100 a barrel. Many diplomats here see $80 a barrel as an unofficial threshold. And if pursuing higher prices helps Russia, which needs cash to finance its invasion of Ukraine, this is just a byproduct of this policy. In other words, Riyadh believes that OPEC+'s production cut is about its business activities and not politics.
Riyadh, however, no longer believes that the "oil for security" agreement with Washington is working as it used to. For decades, Riyadh kept oil prices under relative control and bought American weapons. In return, Washington provided regional security, deploying its military power - if needed - and diplomatic support, largely ignoring human rights violations in the Arab country.
Now the kingdom wants a much more aggressive stance against Iran and its regional proxies, including those in Yemen — and is irritated by how Washington seemingly turned a blind eye to the black market for Iranian crude, allowing Tehran to profit from high oil prices.
The alliance, Saudi officials and local businessmen say, is unbalanced: if Washington wants Riyadh to keep oil prices low, it will have to offer the other side of the deal, most likely putting pressure on Iran. The kingdom is increasingly likely to ask for greater favors in return. As with America First under Donald Trump, Saudi First is a "transaction" between partners.
Effects
Such a shift has important consequences for economies on a global scale: oil prices are likely to remain high for longer, fuelling inflation. For investors in fossil fuel stocks and bonds, it's a sign that boom times may continue. For everyone else, the picture is clearly darker.
Further behind the scenes, there is a deep disagreement about how to manage the energy transition and fight climate change. The Saudis believe the world is too focused on limiting the supply of fossil fuels and discouraging investment, while demand continues to grow. It is an approach, perhaps appropriate for the US and Europe, but not for the emerging world.
"We are looking at it from a Western perspective and the rest of the world has to adapt," said Amin Nasser, chief executive of Saudi arabian state oil giant Saudi Aramco. "No, it can't work like that."
It's a sign of what's coming next. Be prepared to hear the "no" from the Saudis much more often from now on.
Source:BloombergOpinion
