Are we really seeing a geopolitical shift from Saudi Arabia?

Recent weeks have seen some pretty seismic geopolitical developments in the Gulf, which would appear to have huge potential global implications.

First we had the Saudi - Iranian reapproachment, brokered by China;

Second, and following on from this, we had the announcement that Saudi Arabia has applied to join the Chinese dominated Shanghai Cooperation Organisation (SCO);

And third, this week we have had the surprise decision by OPEC+ to cut global oil supplies by 1 million barrels a day. This appeared to not only run counter to market expectations but against US/Western policy initiatives to try and buoy oil supplies to global markets to cap upside on international oil prices so as to help moderate the global cost of living crisis. The Saudi move also risks undermining U.S and Western efforts, reflected in the imposition of an oil price cap on Russia, to curtail energy receipts earned by Moscow and thereby limit its ability and willingness to wage war on Ukraine.

From a very big picture perspective the above would seem to mark a huge geopolitical pivot by Riyadh, from a foreign policy which for decades had been centred on its animosity and longer term battle for regional hegemony with Iran, and partly as a result its strategic alliance with the US. For more than 70 years Saudi Arabia had appeared content to fall under the U.S. strategic umbrella, a strategy that paid dividends with the US intervention in the first Gulf war to help Saudi Arabia fend off the real threat of invasion by Saddam Hussein’s Iraq, after its invasion of Kuwait.

It now appears that, under MBS, Saudi Arabia is moving to a foreign policy where it looks for alternative strategic alliances perhaps in recognition of the move from a unipolar world dominated by the US initially after the collapse of the USSR, to one more recently that recognises a more multipolar world with the rise of China as a hegemonic threat to the US, alongside the rise (and perhaps now fall in Ukraine) regional powers like Russia.

Does this explain the shift, or are other things going on?

What explains all this?

Saudi commentators would perhaps play down talk of a big strategic shift, and argue that Riyadh is just reflecting the global geopolitical reality of an increasingly multipolar world, alongside its own national economic and strategic interests.

They would argue that the harsh reality is that the US is no longer that much dependent on energy supplies from Saudi Arabia, or the Gulf (albeit to NATO allies are). Meanwhile, there is nervousness in Riyadh over what appear to be a clear disengagement by the US from the Middle East as the US has become weary over the expense of blood and treasure  in what it had seen as its mandate to deliver peace and stability in the region. Failed US military interventions in Iraq and Afghanistan, and subsequent withdrawals, have perhaps raised doubts in the minds of Saudi policy makers as to the commitment of the U.S. to defend it and the broader region. So perhaps Saudi Arabia is looking further afield for defensive options from China, which certainly has an interest in defending energy supplies from the region. And with Russia, Saudi Arabia sees common interests in managing global energy prices, high and perhaps higher, and a demonstrated willingness by Putin to use Russian military force in the region (Syria). Perhaps by reaching out to China and Russia, Riyadh hopes to concentrate minds in DC, that Saudi backing/compliance cannot be taken for granted, and that Saudi Arabia has other options.

On the recent last minute OPEC+ oil supply cut, Riyadh has argued that it has nothing do with geopolitics but that it is looking after its own economic interests as it fears recent banking crises in developed markets, and DM central bank policy tightening will crimp global growth and demand for oil - coming on the back of a weak China Covid return to work. They would also highlight that MBS has ambitious plans in Vision 2030 to fund Saudi Arabian economic development, and this needs funding which requires a period of higher oil prices.

There is some logic in the above, albeit Saudi Arabia still has an abundance of sovereign wealth - likely as much as $2-3 trillion in central bank assets, sovereign wealth funds and state ownership states in national champions. Saudi Arabia still has modest public sector debt ratios, and access to international markets through which it can easily fund Vision 2030 at still relatively modest cost.

It’s a bit hard to argue that a $10 a barrel move in the oil price is really going to move the dial when it comes to delivering on Vision 2030, or that Saudi Arabia really needs the extra dimes.

Obviously also the danger from aggressively forcing oil prices higher is that Saudi Arabia accentuates the global cost of living crisis and the growth slow down as a result, ultimately crimping longer term oil and energy prices. Higher oil prices will surely also accelerate the carbon transition, cutting longer term demand for oil and gas - albeit as the lowest cost producer globally, Saudi Arabia still thinks it will be the last man standing in delivering carbon energy to global markets.

But, even assuming that for policy makers in Saudi Arabia the oil supply cut is all about domestic economic considerations, it stretches the imagination to think that they can be so myopic to the particular and very extreme current security concerns of the US, in terms of the war in Ukraine and the broader Western - Russian clash over Ukraine. The Biden administration has framed this as a battle between democracy and autocracy, and Putin’s war in Ukraine is an existential threat to the West, which is why it has rolled out the oil price cap on Russia. By cutting oil supply Saudi Arabia directly goes against and undermines broader U.S. security policy - its agenda in Ukraine and with respect to Russia. To add insult to injury Saudi Arabia is cooperating with Russia to deliver the OPEC+ oil supply cut. The optics here for US - Saudi Arabia relations are just terrible. It looks like Riyadh is going out of its way to undermine US policy, and defence and security objectives. And it comes after the OPEC+ oil supply cut just before the mid terms in the US which appeared to be a broadside against Biden, and attempt to strengthen his GOP political opponents in those elections.

It looks like this is all the same again, a direct affront to the Biden administration from a supremely confident, young, Saudi leader, in MBS. This does look more like a statement of intent from MBS, that he no longer needs or relies on the US. That Saudi Arabia has grown up, and out of the relationship with the US.

Indeed, one can construct a compelling case here that MBS has decided that in a world where the US is asking countries to decide if they are in the democracy or autocracy camps, that Saudi Arabia has made the clear choice, that it just fits more comfortably in the latter camp. And the key to sustaining the absolute monarchy in Saudi Arabia is through rapid economic development and to ensure that MBS needs to assure peace in the region. So if the assumption is that the US no longer has a prime interest in the region, and cannot assure Saudi Arabia of its defence then either Saudi Arabia has to make peace with its enemies or else find other security backstops. And perhaps it is doing both - by making peace with Iran, and at the same time seeking new security pacts and alliances with China, Russia, et al. And the added advantage of these regimes, is that they don’t ask awkward questions of Saudi Arabia around the ESG piste. The fit is just all around cleaner for Saudi Arabia. And perhaps MBS’ youth makes all the above possible as he has no memory of the first Gulf war and no residual feeling of a debt of gratitude to the US and the West for defending Saudi Arabia the last time it’s security was facing an existential risk.

Maybe MBS has just given up on the West.

Saudi commentators have played a lot of this down, but I guess they would do so as not to risk an absolute break in the security relationship with the US just yet - after all the Saudi military are still totally dependent on the US for keeping its fighter aircraft in the air and its missiles flying. Russia’s failing war in Ukraine has also exposed the glaring weaknesses in Russia, and likely Chinese, military kit and capability. But perhaps this is all about a progression to more reliance on China and alternative security backstops. MBS is edging his bets, finding alternatives in order to create new leverage with the US. But the direction of travel is clear and is now set.

Lots of issues arise herein.

First, if we are going to see a sustained Saudi - Iranian peace based on economic necessity, is this going to be a win - win?

Surely the risk from the Saudi perspective is that any peace with Iran opens the economic development floodgates in Iran, and Iraq, allowing for increased oil and energy production from both to rival Saudi Arabia therein and act to put downward pressure on longer term oil and energy prices.

Perhaps Saudi Arabia thinks it just has such huge economic resources, and is so advanced in terms of its economic development plans, that when Iran and Iraq finally awaken, Saudi Arabia will already be in a different plain, having shifted away from reliance on carbon exports, to alternative energy, tourism, logistics, et al.

Second, what about Israel?

Th recent Abraham accord between Irsael and the UAE/Bahrain created optimism of a similar Israeli - Saudi Arabian agreement, but surely now the Saudi Arabian - Iran accord precludes that. Rather, political instability in Israel, and the risk of a push from the Gulf for economic advancement of Iran increases the chances of an Israeli strike on Iran, backed by the U.S, and then of a broader and much more damaging conflict.

Third, what about the US? Does it worry or care about Saudi Arabia’s apparent strategic shift and particularly in the light of its own geopolitical battle for hegemony with China? Does it fear the loss of Saudi Arabia to China? Or does it just feels that Saudi Arabia is so militarily dependent on the US, and the West, that it simply cannot easily shift to rely on China. Perhaps the US conclusion from Russia’s war in Ukraine is that Russian/Chinese military kit/capability is just so far behind the West’s, and Saudi Arabia knows this, that Riyadh is not serious about its dalliance with China. Or perhaps the US is worried but it is just so focused on the war in Ukraine and it’s own economic problems at home that addressing Saudi Arabian concerns is low on its list of priorities. Maybe it’s a combination of all these - they don’t take Saudi threats seriously, and have their focus on other priorities.

Anyway lots of food for thought above, views/feedback welcome.