Biden threatens consequences for Saudi Arabia after OPEC cut

The Saudi-US relationship was founded, in general, on the principle of energy for security. Since the 1940s, Washington has provided billions of dollars in military and security aid to Saudi Arabia. But in recent years, and particularly since the Obama administration began making diplomatic breakthroughs with Iran, Riyadh feels that the United States’ commitment to its security has waned.

“The reality is that neither side has delayed their end of the deal for nearly 10 years now,” Michael Stephens, associate fellow at the Royal United Services Institute in London, told CNBC.

“And what you see, I think, are permanent fissures in the relationship that are based on the fact that neither side really sees the same amount of strategic benefits in the other as they did 20 years ago,” Stephens said, adding that Saudi Arabia and OPEC cut oil production “A reflection of that.”

Possible “consequences” that Washington could put into effect include cutting its military support to Saudi Arabia, and pursuing OPEC with US laws.

Indeed, just a day before Biden’s comments, Senator Bob Menendez, the chairman of the Senate Foreign Relations Committee, demanded that the United States immediately cease all cooperation with Saudi Arabia — including arms sales.

“The United States should immediately freeze all aspects of our cooperation with Saudi Arabia, including any arms sales and security cooperation beyond what is absolutely necessary to defend U.S. personnel and interests,” Menendez said in a statement.

Torbjorn Soltvedt, principal analyst for the Middle East and North Africa at risk, said the decision by OPEC+ – which makes up OPEC and its non-OPEC allies such as Russia – to cut production “highlights the extent to which the Biden administration has lost its ability to influence Saudi OPEC+ policy”. Intelligence company Verrisk Maplecroft.

“The White House has few good options despite Biden warning of ‘consequences’ after the cut,” he said, referring to US lawmakers’ threats to antitrust legislation and the removal of US military assets from Saudi Arabia.

While both tracks would send a clear message, this could backfire for both the US and crude oil prices.

“Both options would threaten to sever already fraught relations, which in turn would put greater upward pressure on oil and fuel prices,” Saltvedt said.

He explained: “In short, the collapse of US-Saudi relations will mean increased Middle East risks for the global oil market and higher oil and fuel prices.” “This is the opposite of what the White House is trying to achieve before the midterm elections in November,” he added.

It is also important to note that a reduction of 2 million barrels per day will not actually be as large as this key figure; Many member states were already well below their individual production ceilings, and Iraq, for example, indicated that it would produce more than its allotted quota.

However, many American politicians have grown impatient with the nature of the US-Saudi relationship, especially since US imports of Saudi oil have shrunk over the years, and more than 80% of Middle East crude oil exports now go to Asia.

This has made a growing number of US lawmakers wonder, Soltvedt said, “Why should the US Navy ensure the security of Middle East oil exports when those barrels are increasingly heading east rather than west?”

CNBC’s Sam Meredith contributed to this report.