The United States has wedged itself in conflicts in the Middle East for decades. But it is in a position this time, as the world’s largest oil producer, to play a different role. Tougher U.S. sanctions on Iran could create an alliance between the U.S. and Saudi Arabia, potentially shifting power away from other countries that make up the Organization of the Petroleum Exporting Countries. That shift would put Saudi in a tough spot, and the U.S. in a strong one.

The 1973 oil crisis set the tone for a conflictual relationship between the United States and OPEC’s leader Saudi Arabia some 13 years after the group, which also includes Venezuela, Iraq, Iran, and Libya, was formed. At the time, the United States had limited oil supply, and needed to import the commodity. Up to 70% of its imports in that decade were from OPEC, with Saudi Arabia providing the biggest share.

The relationship became increasingly strained over time, and the commodity picture changed with it. The attacks on the World Trade Center in New York City in 2001 made the American public skeptical of Middle Eastern nations including Saudi. Tremendous growth in U.S. oil production, thanks to hydraulic fracking, turned the United States into an energy exporter. That in some ways brought commercial ties closer between the two countries. But the killing of journalist Jamal Khashoggi strained relations again.

The partnership over oil has been hot and cold, and Saudi’s leader Mohammed bin Salman is in a tough spot. Saudi Arabia’s coordinated production cuts with Russia, the second-largest crude exporter and subject of American sanctions, angered the Biden Administration due to the pressure it put on prices. The two sides were mulling a deal prior to the violence in Israel, where Saudi Arabia normalized relations with Israel and produced more oil, in exchange for U.S. weapon sales, defense guarantees and possibly nuclear co-operation. But the killings of Israelis by Hamas gunmen are a wild card for these talks. Iran, Saudi’s OPEC partner but geopolitical rival, has funded and armed Hamas, and praised the attacks, but Iranian diplomats claim the country was not involved.

Saudi walks a tightrope. Iran has ramped up oil production this year by more than 500,000 barrels per day. Sanctions could be tightened. If this oil disappeared, Saudi Arabia might replace it, and more, as Saudi’s space capacity is about equal to Iran’s total production of about 3 million barrels a day. But an agreement that increased Saudi production and normalized relations with Israel would not be popular with OPEC, other oil exporting confederates like Russia, and parts of the Arab world.

OPEC’s importance has been in decline anyway: Saudi Arabia accounted for about a third of the group’s exports last year. Plus the relationship with the U.S. could bolster Saudi security. The United States already produces more than a fifth of the world’s oil. Together they would control more than a third of the market, more than the remaining countries in OPEC. So Saudi may decide it’s better to be under the U.S. umbrella.

That could mean the fraying of an alliance of an organization that has controlled the oil market since its formation 63 years ago. It also means that Biden’s America rapidly becomes the world leader in dirty fuel.
Source: Reuters