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Simon Watkins

Simon Watkins

Simon Watkins is a former senior FX trader and salesman, financial journalist, and best-selling author. He was Head of Forex Institutional Sales and Trading for…

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Saudi Arabia And Iran Held Secret Meetings To Bolster Collaboration

  • Iraq played the role of mediator in a series of secret meetings between Iran and Saudi Arabia.
  • Comments from MbS in April 2021 paved the way for improved relations between Tehran and Riyadh.
  • The positive comments towards Iran from MbS came at around the same time that Aramco was broadening and deepening its cooperation with China.
  • The rapprochement between Saudi Arabia and Iran comes at a time when Riyadh is looking to deepen cooperation with both China and Russia.

Given the centuries-long hatred between regional rivals, Iran and Saudi Arabia, last week’s comments by Iran’s President, Ebrahim Raisi, that there have been five rounds of meetings between high-level personnel from Tehran and Riyadh in recent months has drawn surprisingly little attention. This is all the more surprising, given that Raisi then cited Iraq – which apparently played the role of mediator between the two sides – as praising: “The initiatives offered, and measures taken by Iraq to improve cooperation among regional countries free from foreign meddling [will] play an effective role in bolstering regional collaboration.” In sum then, a rogue state, and the former number one ally of the U.S. in the Middle East, have been chatting away for months, hosted by a country which, following the U.S.’s ‘end of combat mission’ last year, appears to be drifting into civil war; so, what is going on precisely and where does it lead? As OilPrice.com has uniquely been highlighting for several months, Saudi Arabia’s days of being counted on by the U.S. as an ally are over. A key signal of this shift – over and above all the other signs since the end of the 2014-2016 Oil Price War, as analysed in depth in my latest book on the global oil markets – were comments about Iran made by Saudi Crown Prince, Mohammed bin Salman (MbS) last year. At the end of April 2021, he stated very publicly that he seeks: “A good and special relationship with Iran…We do not want Iran’s situation to be difficult; on the contrary, we want Iran to grow… and to push the region and the world towards prosperity.” This comment, as highlighted by OilPrice.com at the time, followed the first in what has now transpired to be four further meetings in Baghdad between senior figures from the Iranian and Saudi regimes, the first of which was personally brokered by then-Iraq Prime Minister, Mustafa al-Kadhimi. The existence of these talks was subsequently confirmed by an Iraqi government official, although neither Riyadh nor Tehran formally acknowledged them at the time.  Related: OPEC+ Cuts Production Despite Resistance From Russia
The positive comments towards Iran from MbS came at around the same time that Saudi Arabia’s flagship oil and gas company, Aramco, let it be known that it was in the process of broadening and deepening its relationship with Beijing. China was at the time, and remains, Iran’s chief sponsor via the 25-year deal signed back in August 2019, and is also the country most intent on replacing the U.S. as the key superpower in the Middle East. In this context, March 2021 saw Aramco’s chief executive officer, Amin Nasser, tell the 2021 China Development Forum that: “Ensuring the continuing security of China’s energy needs remains our highest priority – not just for the next five years but for the next 50 and beyond.” 

He added: “As a new era begins, we look forward to contributing even more to China’s economic development and common prosperity...Every step of the way we aim to be side-by-side with our Chinese partners, delivering these strategic, value-adding, parallel priorities.” These statements neatly align Saudi Arabia with China’s multi-generational ‘One Belt, One Road’ project that in real terms is a straightforward power grab of influence in the Middle East away from the U.S.

It is not just towards one of Iran’s key state sponsors, China, that Saudi Arabia has shifted, but towards the other one – Russia - as well. As also analysed in depth in my latest book on the global oil markets, at the end of the Saudi-instigated 2014-2016 Oil Price War, the Kingdom was not just in a terrible financial position, but its reputation as an oil power and its credibility as the de facto leader of OPEC had been severely damaged. The same negative fallout had struck all of the Middle Eastern members of OPEC as well, who found not only that their finances were decimated but also that, even as OPEC, their pronouncements on future oil output and prices were no longer taken as seriously as they once were. At this crucial juncture, and just before the new end-2016 OPEC oil output deal was announced, Russia stepped in to lend its weight to the co-ordinated production plan, and ‘OPEC+’ was born. In this moment, Russia replaced the U.S. as the most important state sponsor for Saudi Arabia’s continued oil success, or failure, in the future.

It is highly instructive to examine, as OilPrice.com has done, Saudi Arabia’s reaction to Joe Biden’s tenure so far as U.S. President, and then to Russia’s invasion of Ukraine. Biden made no secret of his distaste for the Saudi regime even in his election campaign, and this was carefully noted by the Saudis. On 2 October 2020, Biden said he would seek to: “…reassess our relationship with the Kingdom [of Saudi Arabia], end U.S. support for Saudi Arabia’s war in Yemen, and make sure America does not check its values at the door to sell arms or buy oil.” 

Related: Why Europe’s Dependence On U.S. LNG Is Risky

With regard to MbS, during the same speech – which marked the second anniversary of the murder of expatriate Saudi journalist, Jamal Khashoggi, which according even to the CIA was carried out on the personal orders of the Crown Prince – Biden appeared to endorse the CIA’s findings. Biden also issued a: “…call for people everywhere to exercise their universal rights in freedom…America’s commitment to democratic values and human rights will be a priority, even with our closest security partners.” Several high-level figures in Saudi Arabia regarded this comment as tantamount to a U.S. call to resurrection for the discontented in the Kingdom.

Although it is true that Saudi Arabia has nowhere near the crude oil reserves nor the spare capacity that it claims, as also analysed in depth in my latest book on the global oil markets – indeed, from 1973 to the end of last week, its oil output has been an average of 8.192 million barrels per day only – the fact that MbS would not even deign to take a telephone call from Biden on the subject of helping to reduce oil prices tells anyone all they need to know about how the Saudis view the current U.S. President. 

If it does not, then the fact that Saudi Arabia very recently threatened to lead OPEC into a concerted cutting of its collective crude oil production – which would lead to even higher prices over a longer period – should fill in any gaps. Saudi Arabia’s contempt is not just for the sitting U.S. President, however, but also it seems more broadly for the U.S. and the West as well. Just after Russia’s invasion of Ukraine in February, MbS highly publicly reiterated his country’s “commitment to the ‘OPEC+’ agreement” – working alongside the agreement’s other key partner, Russia.

Just prior to that, Saudi Arabia signed a slew of deals with the U.S.’s main global power rival, China, following an earlier series of meetings in Beijing between senior officials from the Chinese government and foreign ministers from Saudi Arabia, Kuwait, Oman, Bahrain, and the secretary-general of the Gulf Cooperation Council (GCC). At these meetings, the principal topics of conversation were to finally seal a China-GCC Free Trade Agreement and “deeper strategic cooperation in a region where U.S. dominance is showing signs of retreat,” according to local news reports

By Simon Watkins for Oilprice.com

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