A number of peculiar things have happened in the Middle East in the past few weeks involving the U.S., Saudi Arabia, and the UAE, all with some sort of focus on Iran. To begin with, at the end of April, the U.S’s designated main man in Saudi Arabia - Crown Prince Mohammed bin Salman – stated very publically 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.”
Such sentiments are in direct contrast to what might be expected from the effective ruler of Saudi Arabia, the historical archenemy of which is Iran. Bin Salman has previously launched numerous tirades against Iran accusing it of being the prime mover of instability and terrorism across the region. Stranger still, though, is the fact that these comments followed a secret meeting in Baghdad between senior figures from the Saudi and Iranian regimes, brokered by Iraq Prime Minister, Mustafa al-Kadhimi. These talks were subsequently confirmed by an Iraqi government official through various news services, although neither Riyadh nor Tehran formally acknowledged them.
The positive comments towards Iran from bin Salman came at around the same time as Saudi Arabia’s flagship oil and gas company, Aramco, let it be known that it is in the process of broadening and deepening its relationship with China, which is not only Iran’s chief sponsor via the 25-year deal signed back in 2019 but also the country most intent on replacing the U.S. as the key superpower in the Middle East.
In March, Aramco’s chief executive officer, Amin Nasser, told 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: “To help China meet its innovation, modernisation, and sustainability goals, Aramco’s Research Center in Beijing is already working with Chinese universities and companies in areas such as cleaner engine-fuel systems of the future, catalytic crude-to-chemicals technology, and focusing heavily on reducing and removing greenhouse gas emissions.” He concluded: “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 clearly appear to 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.
At least as apparently threatening to U.S. interests in the region – and around the world, given the massive hydrocarbons assets at stake in the Middle East – was the news that Aramco is weighing up whether to sell a one percent stake to a Chinese entity. As reported in OilPrice.com, such a sale would mark a decisive shift of power in the Middle East towards China and away from the U.S., further fracturing the already-strained 1945 core relationship agreement between Washington and Riyadh. For China, Saudi has long been a prime target of its overarching strategy to replace the U.S. not just as the world’s largest economy by nominal GDP by 2030 at the latest (it is already the world’s largest economy by purchasing power parity, the largest manufacturing economy, and the largest trading nation) but also as the major geopolitical power in many of the U.S.’s key spheres of influence. Nonetheless, as exclusively highlighted in the OilPrice.com piece, Saudi Arabia’s ties with China are already a lot deeper than most people realise, with the most significant upgrading of this core relationship beginning with a series of high-levels meetings between senior Saudi and China officials in August and September 2017.
These included a meeting between King Salman and Chinese Vice Premier, Zhang Gaoli, in Jeddah during which Saudi first mentioned seriously that it was willing to consider funding itself partly in Chinese yuan, raising the possibility of closer financial ties between the two countries. Indeed, at these meetings it was also decided that Saudi Arabia and China planned to establish a US$20 billion investment fund on a fifty-fifty basis. The Jeddah meetings in August 2017 followed a landmark visit to China by Saudi Arabia’s King Salman in March of that year during which around US$65 billion of business deals were signed in sectors including oil refining, petrochemicals, light manufacturing and electronics.
So is Saudi Arabia about to fundamentally switch its alliance away from the U.S. and towards China? Certainly, the U.S. increasingly regards its current power struggle with China as a zero-sum game so will not be interested in participating in any nuanced diplomatic manoeuvrings that Saudi might be trying to play between the two sides. Recent statements from bin Salman stressing that although Saudi still regards the U.S. as ‘a strategic partner’ he is not willing to accept any interference from Washington in its internal affairs were very poorly received in Washington, OilPrice.com understands from senior political sources there. However, bin Salman knows very well that there is a limit to how far he can push the U.S. without prompting a reiteration of the threat first overtly made by former U.S. President Donald Trump on 2 April 2020.
At that time, Saudi had been engaged for a month or so in yet another oil price war involving huge overproduction of crude aimed at crashing oil prices in order to destroy or at least significantly disable the U.S. shale oil industry. During the direct phone call from Trump to bin Salman it was made extremely clear that unless OPEC started cutting oil production Trump would be powerless to stop lawmakers from passing legislation to withdraw U.S. troops from the Kingdom. In addition, Trump said that the next time that the Saudis tried to destroy the U.S. shale sector it would be the end of the 1945 Agreement, with no further warning, and that U.S. military would be withdrawn immediately.
Given this, it may be instead that Saudi Arabia’s recent actions are entirely consistent with a new U.S. policy of seeking to ‘keep its friends close but its enemies closer still’. “The withdrawal of the U.S. from the JCPOA [Joint Comprehensive Plan of Action or ‘nuclear deal’] in May 2018 only drove Iran further into the influence of China and Russia, taking Iraq with it, and all of the other countries in the region in which Iran has great influence, including Syria and Lebanon, and meant that Iran could do whatever it wanted without any surveillance from anyone else,” a senior Iranian source close to the government in Tehran told OilPrice.com last week. “[U.S. President, Joe] Biden’s approach appears to be to re-engage with the JCPOA in some form [as was heralded in the last few days by Iran President Hassan Rouhani], so bringing Iran back into a relationship in which it can be monitored and to some degree managed, and by having Saudi Arabia encourage Iran towards a more conciliatory stance this has a better chance of being achieved,” he added.
Perhaps the surest signs that this policy shift is occurring are twin announcements very recently that tie Iran in to the U.S.’s sphere of influence, either through Saudi Arabia or the UAE (the key member in the U.S.-Israel-Arab states ‘relationship normalisation’ strategy). The first was a statement in April from Iran’s sister state, Iraq, that it has decided to establish a joint US$6 billion with Saudi Arabia and the UAE to invest in various projects in Iraq.
A cornerstone of the agreement underpinning this investment will be: “Cooperation in the fields of energy and renewable energy and activating and accelerating the joint action plan under the umbrella of the Saudi-Iraqi Coordination Council, with the need to continue cooperation and coordination within the scope of work of OPEC and OPEC+ in a way that guarantees the stability of the global oil markets.” Less than two weeks later came news that a Saudi oil firm, with significant U.S. intelligence and logistical support – Delta Oil Company – is in talks to develop Iraq’s highly strategic Akkas gas field, alongside U.S. oil services giant, Schlumberger. Previously eyed by Russia as a key element of a triangle of such sites strategically running across Iraq and into Syria, Akkas is not only situated in an area controlled by Iraq’s Sunni minority but also is a vital component of Iraq’s move to better optimise its own gas resources in order to minimise its dependence on Iran for gas and electricity supplies.
By Simon Watkins for Oilprice.com
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For a time since the discovery of oil in Saudi Arabia, the Saudis accepted that their fate is tied with the United States in the form of oil for security. However, this slogan has become tired and stale with the decline of the United States influence in the world and the rise of great powers like China and Russia.
So Saudi Arabia has to adapt to the changing circumstances by assessing its balance of benefits and losses with the United States.
The United States has been benefiting immensely from its relations with Saudi Arabia by selling possibly trillions of dollars of weapons to the Saudis over more than fifty years, playing Iran against Saudi Arabia to sell more armaments to the Saudis and keep them under its thump and demanding that Saudi Arabia produce more oil to force oil prices down for the benefit of the US economy even at the expense of the Saudi econonmy. In a nutshell, the Saudis have been for decades quenching the United States’ thirst for oil, financing its wars and doing its bidding. The petrodollar which is the core of the US financial system might not have come into existence in 1973 without Saudi cooperation. These benefits to the US are now on the way out.
To protect its oil infrastructure and oil assets from the Houthis of Yemen, Saudi Arabia has no alternative but to have a rapprochement with Iran. And to protect itself from changing US policies towards it and the possible threat of a US-inspired change of regime, Saudi Arabia has to ally itself with the rising powers in the world China in particular and Russia. Saudi Arabia knows full well that the economic and strategic benefits it will reap from an alliance with China are so enormous that they can’t be ignored. After all it would be allying itself with the largest economy in the world based on purchasing power parity (PPP), the largest buyer of Saudi crude and a superpower to boot with rising influence in the Gulf region and particularly the greatest influence on Iran.
The United States can withdraw its troops from Saudi Arabia deployed supposedly there to protect it from Iran and paid for by the Saudis. Still, the United States didn’t rush to defend the Saudis when Iran’s allies, the Houthis, caused considerable damage to Aramco’s Abqaiq processing and pumping station causing a loss of 50% of Saudi crude production.
Sooner or later, Saudi Arabia will have to accept the petro-yuan as payment for its crude exports to China and invest in better-yielding Chinese bonds.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London