Saudi-US relations and the BRICS alliance

As the relationship between Saudi Arabia and the United States continues to deteriorate, the Kingdom has indicated an interest in joining BRICS. 

There are many differences between the United States and Saudi Arabia and yet, surprisingly, the two states have been closely aligned since the 1950s. This relationship was founded on a simple set of premises. The US would provide military support to the Kingdom. In exchange the Saudis would provide the US with their oil. With the exception of the Arab Oil Embargo in 1973, the arrangement has functioned smoothly, although signs are emerging which suggest this long-standing relationship is now in decline.      

To understand the decline in the relationship between the United States and Saudi Arabia we have to go back to the early 2000s when oil prices were rising due to a booming China. Increased demand saw the commodity rally from approximately $45 per barrel between 2000-2003 to a peak of $189 in 2008. This run up in oil prices made more expensive production methods such as horizontal drilling and shale fracking increasingly profitable, especially in the US, which despite a strong reputation for environmental friendliness invested heavily in this technology during the Obama administration.

This led to an increase in US crude output from 5 mbpd in 2008 to over 11 mbpd today, and in 2010, for the first time in over fifty years, the US became a net exporter of oil. With their biggest customer becoming a major competitor, the Saudis were not pleased. They refused to cut production as prices declined and the ensuing price war led prices to fall back below $45 in 2016. Then Barack Obama signed the Paris Agreement, committing the US to a transition to renewable energy, a decision which threatened to have major ramifications for the Kingdom of Saudi Arabia, a country which generates the vast majority of its foreign exchange earnings from exporting oil.

The election of Donald Trump did little to improve the situation. Trump’s insistence on US energy independence coupled with unsubtle threats towards the House of Saud are unlikely to have gone down well in Riyadh. Trump told King Salman that the House of Saud would not last more than two weeks without US military support and claimed that OPEC was ripping off the rest of the world.

Trump was at least willing to overlook what the current administration considers a host of human rights abuses. Biden on the other hand insisted during his election campaign that he would make Saudi Arabia a ‘pariah’, directly blaming the Saudi leadership for killing journalist Jamal Khashoggi. Biden also instructed the FBI to release documents requested by the families of 9/11 victims, a bold departure from his Democratic Party predecessor, Obama, who vetoed a 2016 bill seeking to allow the 9/11 families to sue the Saudi government.

This was all unfolding against the backdrop of global coronavirus lockdowns, which saw the price of oil drop below $0 to as low as -$37 on futures markets due to the cost of storage being higher than the price anyone was willing to pay for a barrel of oil. That these lockdowns were championed more enthusiastically by Biden and the Democrats than Trump’s Republicans only served to confirm to the Saudis that the incoming administration had not only abandoned decades of discreet diplomatic norms but had developed a total disregard for the Kingdom’s primary economic interests.

Biden’s recent decisions to release crude from the US strategic reserves, while simultaneously asking Saudi Arabia to increase production, while trying to reinstate a deal to bring Iranian oil back onto the market, have proven to be further irritants. After years of low prices, the Saudis are determined to keep oil prices elevated to bolster their budget and consider Iran their greatest geographical rival.   

The Saudis, it appears, have finally had enough, and instead of agreeing to increase oil production as Biden requested, have instead came to an agreement with their OPEC+ allies to cut crude oil output by 2mbpd. This is an unprecedented snub and a particularly galling one for the Americans due to the fact that this agreement was made in collaboration with Russia, a country the US is attempting to isolate due to its military intervention in Ukraine.

Now, South African President Cyril Ramaphosa has returned from a diplomatic visit to the Kingdom claiming the Saudis have expressed an interest in joining the BRICS alliance. BRICS includes the US’s two greatest rivals - China and Russia, so this is a bold move from Saudi Arabia. But it actually makes a good deal of sense. China and India are two of the biggest importers of Saudi Arabian oil, and the Russians work closely with the Saudis within OPEC+.

The Saudis are not the only ones apparently keen to join BRICS. Algeria, Turkey, Egypt, Indonesia, Mexico, and Pakistan are thought to be interested too. Argentina and Iran having already formally applied. Whether the current BRICS members will be willing and able to integrate new members in the near future remains to be seen. Nevertheless, the geopolitical implications are astounding. An enlarged BRICS would substantially increase political power outside the G7, and the idea that Iran and Saudi Arabia might join BRICS together is an intriguing statement about the value system such an alliance has the potential to engender.

BRICS is not about great powers dictating terms to smaller nations, nor is it about everyone agreeing about everything. It is simply a new platform for large but politically marginalised emerging market economies to work together to identify opportunities and synergies on a case by case basis for the benefit of their economic development and the achievement of their sustainable development goals. Due to the financial impact that oil prices tend to have on inflation, capital allocation, and global financial flows, bringing the world’s biggest oil producers and consumers together under one umbrella would certainly be a step in the right direction.