Saudi client state relationship with the US could further destabilise the world

Saudi Arabia approached members of Organisation of Petroleum Exporting Countries (OPEC) and its affiliates to cut oil production in an attempt to cushion the impact of the falling oil prices as a result of COVID-19. Russia rejected the proposal; subsequently a spat between Russia and Saudi Arabia ensued. Saudi Arabia and the United Arab Emirates (UAE) increased oil productions with an intention of punishing Russia. The increased oil production has led to record low prices in the industry. The oil price plunged to 18-year lows of less than $28 a barrel. Notwithstanding the possible loss of revenue as a result of increased oil production, Russia a significant oil producer in its own right, stood its ground. It led to the annoyance of Crown Prince and de facto leader of Saudi Arabia, Mohammed Bin Salman. Bin Salman threatened to further increase oil production if Russia didn’t yield. Why did Russia reject Saudi proposal, after all, the proposal intended to benefit all oil producers not only Saudi Arabia? Reduction in volumes would have certain helped OPEC countries and affiliates recoup lost profits particularly small oil producers. Russia’s concern was that cuts could mean a possible loss of market share, US producers could fill the gap and gain additional market share. Second, Saudi Arabia’s plan was seen by Russia as an attempt to assist Donald Trump meet his economic and political challenges at home. Trump and his allies on Capitol Hill are fully aware of the problem: the fortunes of many of the president’s wealthy supporters in the industry are on the line as well as and the employment of workers whose jobs are heavily concentrated in red states like Texas, North Dakota and Louisiana. Since US is not a member of OPEC, it would have not been bound by the terms of the deal and would have benefited from the shortfall of global oil supply and price. The change in course would give American companies room to gradually reduce production on their own terms, without government or regulatory mandates, as they invest far less in exploration and production.

The increase in supply of oil and subsequent drop in the price of oil have been good for those countries that import oil. It has given these countries a chance to stockpile which will most likely impact on the demand of oil in foreseeable future. However for oil producing countries especially smaller countries, the situation has been a disaster. Many oil-producing countries have failed to diversify their economies over the years; they are still dependent on oil exports. Therefore the continuing disturbances in oil production have forced many to slash national spending. Saudi Arabia, the most influential of OPEC’s 12 member countries, needs oil at $106 a barrel in order to break even after the costs of its generous welfare programs and energy subsidies. The kingdom will be forced to take from its financial reserves to fund its bloated budget if the price of oil plummets further. The deal was finally brokered enabling Russia and Saudi Arabia back to a negotiation table. Consequently, members of Opec oil cartel and its allies have agreed to withhold almost 10m barrels a day from next month after the outbreak of Covid-19 wiped out demand for fossil fuels .

There is a lesson to be learned from this experience. The client state relationship Saudi Arabia has with the US under President of Donald Trump is dangerous for world stability. The re-election of Trump will certainly mean the continuation of status quo, a serious worrying factor. Saudi Arabia has still not accounted for the brutal murder of Jamal Khashoggi and has at best treated those demanding justice for Khashoggi with a scorn. Couple of days ago, Saudi activist, Abdul Rahim al-Hwaiti was killed in a hail of bullets. Al-Hwaiti hails from the powerful al-Huwaitat tribe who are based in three countries: Saudi Arabia, Jordan, and the Sinai in Egypt. The al-Huwaitat have resided in the region for more than 800 years, predating the Saudi state itself by many centuries over. Hwaiti has been protesting against what he regarded as forcible removal of his family from their ancestral land. Saudi plans to develop a mega city known as NEOM in the province of Tabuk. The city will be a hub for new housing, business, science research and other forms of industry.

The wanton killing of Hwaiti and the unnecessary spat between Saudi Arabia and Russia are but examples of an extent of what Bin Salman could do under the protection of Donald Trump. Increased oil production at an expense of OPEC member countries was unprecedented and irresponsible. Saudi Arabia was willing to gamble with countries’ national budgets in order to fulfill its personal vendetta against Russia. It was an act of impunity which demonstrated the toxicity of client state relationship Saudi has with the US.