Saudi Arabia Defied U.S. Warnings Ahead of OPEC+ Production Cut
By: WSJ
S E E D E D C O N T E N T
RIYADH, Saudi Arabia—Days before a major oil-production cut by OPEC and its Russia-led allies, U.S. officials called their counterparts in Saudi Arabia and other big Gulf producers with an urgent appeal—delay the decision for another month, according to people familiar with the talks. The answer: a resounding no.
U.S. officials warned Saudi leaders that a cut would be viewed as a clear choice by Riyadh to side with Russia in the Ukraine war and that the move would weaken already-waning support in Washington for the kingdom, the people said.
Saudi officials dismissed the requests, which they viewed as a political gambit by the Biden administration to avoid bad news ahead of the U.S. midterm elections , on which control of Congress hangs. High gas prices and inflation have been central issues in the campaign.
Instead, the people said, the kingdom leaned on its OPEC allies to approve the cut, which is aimed at reducing production by 2 million barrels a day.
Adrienne Watson, a National Security Council spokeswoman, rejected Saudi contentions that the Biden administration efforts were driven by political calculations. U.S. officials questioned a Saudi analysis that the price of oil was about to plunge and urged them to wait and see how the market reacted. If the price did collapse, U.S. officials told their Saudi counterparts, OPEC+ could react whenever they needed.
“It’s categorically false to connect this to U.S. elections,” Ms. Watson said. “It’s about the impact of this shortsighted decision to the global economy.”
National Security Council spokesman John Kirby said Tuesday that President Biden believes that the U.S. should review the relationship with Saudi Arabia in light of the OPEC+ decision, “and take a look to see if that relationship is where it needs to be and that it is serving our national security interests.” He said the president was willing to discuss the bilateral relationship with members of Congress.
On Tuesday Prince Faisal bin Farhan, the Saudi foreign minister, said the OPEC+ decision was purely economic and had no political dimensions. The alliance seeks to stabilize energy markets and advance the interests of producers and consumers, he said in an interview with Saudi-owned Al Arabiya television.
Prince Faisal said relations with the U.S. are long standing and strategic and that military cooperation between the two countries has contributed to peace and stability in the region.
U.S. officials said the OPEC+ decision was unhelpful as inflation driven by high energy prices threatens global growth and represents an economic weapon against the West for Russian President Vladimir Putin . It threatens to drive up American gasoline prices ahead of the Nov. 8 midterms.
The one-month delay requested by Washington would have meant a production cut made in the days before the election, too late to have much effect on consumers’ wallets ahead of the vote.
Since the OPEC+ decision, the White House vowed to fight OPEC’s control of the energy market. Lawmakers from across the political spectrum called on the U.S. to cut off arms sales to Saudi Arabia. And U.S. officials started looking for ways to punish Riyadh.
In one of its first responses, U.S. officials said, the Biden administration is weighing whether to withdraw from participation in Saudi Arabia’s flagship Future Investment Initiative investment forum later this month. According to people familiar with the matter, the U.S. has pulled out of a working group meeting on regional defenses next week at the Gulf Cooperation Council, based in Saudi Arabia.
Mr. Biden’s visit to Saudi Arabia in July was meant to repair relations after the president entered office with a vow to treat the kingdom as a pariah over human rights, particularly the 2018 killing of Saudi journalist Jamal Khashoggi at the hands of Saudi agents.
Images of the president’s fist bump with Crown Prince Mohammed bin Salman became a polarizing symbol of the trip.
But according to people inside the Saudi government, Mr. Biden’s July visit did little to change Prince Mohammed’s determination to chart a foreign policy independent of U.S. influence, in a break from almost 80 years of American-Saudi partnership.
If anything, said the people inside the Saudi government, the visit angered Prince Mohammed, who was upset that Mr. Biden went public with his private comments to the Saudi royal over Mr. Khashoggi’s death , which prompted Saudi officials to publicly contradict Mr. Biden’s characterization of their interaction.
U.S. officials said they saw no indications in their talks with Saudi leaders in recent months that Mr. Biden’s comments about Mr. Khashoggi had been damaging to ties.
Prince Mohammed—who runs the kingdom day to day for his father, King Salman—has tried to maximize Saudi Arabia’s economic strength. With high energy prices, the kingdom’s economic growth this year is estimated by the IMF at more than 10%—making it one of the best performers globally .
Prince Mohammed has told advisers that he isn’t willing to sacrifice much for the Biden administration, said the people inside the Saudi government, citing its critical view of the Saudi war in Yemen, bid to close a nuclear deal with Iran that Riyadh opposes and Mr. Biden’s own comments on the prince.
In August, the Saudis had planned to push OPEC+ to raise oil production by 500,000 barrels a day in an effort to please Mr. Biden, but Prince Mohammed ordered the increase lowered to a token 100,000 barrels a day after the Biden visit, the people inside the Saudi government said.
The U.S. State Department’s energy-security envoy, Amos Hochstein, sent the Saudi energy minister, Prince Abdulaziz bin Salman, an email that suggested he had broken his word promising a larger increase, people familiar with the matter said.
The email angered Prince Abdulaziz and strengthened his resolve to forge an oil policy independent of the U.S., the people said.
In September, Prince Abdulaziz engineered OPEC+’s first production cut since the pandemic, erasing the 100,000 barrels a day increase from August. Then, before the Oct. 5 OPEC+ meeting, Prince Abdulaziz called Persian Gulf oil chiefs and urged them to back a bigger cut, OPEC+ delegates said.
He cited a Western plan for an oil-price cap as a direct attack on crude producers, according to OPEC+ delegates. “It’s us against them,” he told at least two Gulf oil ministers in phone calls, according to the delegates.
U.S. officials launched an intense lobbying campaign to persuade Saudi Arabia to delay its plans, people familiar with the matter said. White House officials held multiple calls with Prince Mohammed, the people said, and Treasury Secretary Janet Yellen spoke to the Saudi finance minister.
The United Arab Emirates, another significant OPEC producer, opposed the production cut and advocated privately for a one-month delay, in line with U.S. requests, said people familiar with its position. In the days leading up to the Oct. 5 OPEC+ meeting in Vienna, Emirati officials communicated intensely with their Saudi and U.S. counterparts in an effort to prevent the decision, the people said.
Kuwait, Iraq and Bahrain also pushed back privately against the proposed cut, arguing it could trigger a recession that would sap oil demand, but all these countries ultimately went ahead with the decision in order to preserve unity within OPEC+, U.S. and regional officials said.
U.S. officials said they were blindsided by the size of the cut, believing OPEC+ would only cut one million barrels a day.
Russia had lobbied the Saudis to enact the production cut, OPEC+ delegates said. Kremlin spokesman Dmitry Peskov called the OPEC+ decision “balanced, thoughtful and planned work of the countries.”
The White House has said the OPEC+ decision shows that the group is clearly aligned with Russia now. U.S. officials warned that the Saudi move could imperil more than $100 million in active foreign military sales that Riyadh is seeking from the U.S.
U.S. lawmakers announced plans to reintroduce a bill to immediately suspend arms sales to Saudi Arabia. Any hopes the Saudis had of securing more precision guided missiles from the U.S. have been all but quashed, U.S. officials said.
Some U.S. lawmakers want to pull American troops out of Saudi Arabia. And Senate leaders from both parties are backing a bill that would allow the Justice Department to sue Saudi Arabia and other OPEC nations for illegal price fixing.
Among those calling on the U.S. to punish Saudi Arabia for the move was U.S. Sen. Robert Menendez, (D., N.J.), who vowed to use his position as chairman of the Senate Foreign Relations Committee to block any future arms sales to the kingdom.
“There simply is no room to play both sides of this conflict—either you support the rest of the free world in trying to stop a war criminal from violently wiping off an entire country off of the map, or you support him,” he said. “The Kingdom of Saudi Arabia chose the latter in a terrible decision driven by economic self-interest.”
President Biden said on Tuesday that the U.S. should rethink its relationship with Saudi Arabia. In an interview with CNN, Mr. Biden defended his visit to the country in July, saying he didn’t go to talk about oil but the Middle East.
Mr. Biden said that when Congress is in session “there’s going to be some consequences for what they’ve done, with Russia.”
Saudi officials said the OPEC+ production cut was necessary to protect their economy.
By early October, oil prices had fallen over 30% from a peak in June, and were threatening to fall below $80 a barrel. Saudi Arabia is likely to need $76-$78 a barrel to balance its budget next year, economists say, based on preliminary forecasts.
Brent crude traded at $94.01 on Tuesday, up 13% since hitting a low of $82.86 on Sept. 26.
Saudi officials told their American counterparts that they believed the oil market could collapse if they didn’t act, and fall to $50 a barrel—a move they feared would imperil the kingdom’s Vision 2030 economic plan to diversify its economy, said people familiar with the matter.
To entice the Saudis to delay their decision, U.S. officials told the kingdom they would buy oil on the market to replenish Washington’s strategic stockpiles if the price of Brent, the main international benchmark, fell to $75 a barrel, according to U.S. officials and people inside the Saudi government.
Such a large American purchase of oil could have put a floor on prices. The Saudis refused the offer.
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