Saudi Arabia

Welcome to “Women Around the World: This Week,” a series that highlights noteworthy news related to women and U.S. foreign policy. This week’s post, covering January 5 to January 11, was compiled with support from Rebecca Turkington and Rebecca Hughes.

This year, a worsening of the humanitarian crisis in Yemen was included as a top tier priority in the Center for Preventive Action’s annual Preventive Priorities Survey.

Why is everyone so angry about Saudi Arabia's crown prince? Jamal Khashoggi is only a small part of the story.

The Organization of Petroleum Exporting Countries (OPEC) decision to cut oil production by 1.2 million barrels a day (b/d), together with Russia and a few other non-OPEC producers, may have garnered the organization’s members a few extra dollars temporarily, but it belies larger problems ahead for the 57 year old cartel. OPEC has weathered many geopolitical and economic challenges in the past, not the least of which was surviving land wars between countries in its membership and multiple crashes of oil prices below $10 a barrel. But, like many things changing in the current world order, OPEC’s mission is starting to look increasingly anachronistic and events swirling around the meeting last week in Vienna foreshadow conditions that might require more introspection than the organization or its members will be able to muster. The United States’ response to OPEC may also seem effective in staving a rise in oil prices this autumn, but Washington also needs to give further examination to its long run strategy regarding the cartel. Two of the big side disruptions at OPEC’s latest December gathering was the appearance of Brian Hook, Special Representative for Iran and Senior Policy Advisor to the Secretary of State at the U.S. Department of State, at the sidelines of the meeting and Qatar’s surprise announcement it would be quitting the organization. Mr. Hook confirmed to reporters just ahead of the OPEC meeting that the U.S. had to grant waivers to Iranian oil sanctions “to ensure we did not increase the price of oil.” The envoy said ahead of the OPEC meeting that he expected a “much better-supplied oil market” in 2019, when he said the U.S. would be in a “better position to accelerate the path to zero [Iranian Oil Exports].” The role of the United States in choosing the pace at which to eliminate Iranian oil from the market explicitly based on oil prices raises all kinds of thorny problems both for OPEC and for U.S. policy makers.  U.S. sanctions on Iran and any waivers were clearly a factor OPEC has had to consider in forecasting global oil market supply, but the appearance of Mr. Hook at the sidelines of the OPEC meeting in Vienna last week was problematical because it implied, perhaps accidentally, a level of coordination that goes beyond just jawboning allied oil producers to put out more oil to replace Iranian barrels. The controversy surrounding Mr. Hook’s visit to Vienna calls attention to the age-old question that has plagued OPEC in recent years: what oil price should be considered too high or too low? One might have thought that issue would have been front and center in OPEC’s recent deliberations. As prices rose to $86 in October, the ramifications for emerging market economies looked dire. U.S. President Donald Trump took to twitter and both publicly and privately the U.S. made the point that oil prices above $65 would be problematic for the global economy. There seemed to be evidence to that view as economic growth and oil demand appeared to falter in the months when oil prices were climbing. Earlier this year, Saudi Arabia indicated that oil prices of $70 to $80 might be more to its liking, begging the question whether the kingdom’s own economic pressures would prompt it to view the world’s ability to absorb higher oil prices too optimistically. OPEC has used the vocabulary that it is just trying to “stabilize” oil prices or “balance” the market but those terms are meaningless without a reference to a price range at which that stability would be defined. Certainly, OPEC and Saudi Arabia specifically, can ill-afford pushing oil prices up to costs that would harm the health of the global economy and thereby crater oil demand more extensively. In that regard, the United States and Saudi Arabia should be seeing eye to eye. Moderate oil prices seem to be in OPEC’s long run interests, not only to avoid a massive drop in oil demand, like the one seen in 2009 during the world financial crisis, or like in 1998 from the Asian flu, but also to stave off the acceleration of competing technologies that might someday bring about a peak in global oil demand.  The higher the oil price now, the more unconventional oil and gas is likely to leave U.S. shores in the coming years, and the more large logistics companies and others will shift to optimization technologies that will limit oil use. There is also the bevy of alternative transport fuels waiting in the wings for the new oil price spike, including electric batteries, natural gas and hydrogen.   The very concept that these alternative technologies exist has changed the politics of U.S. oil-for-security alliances from within U.S. domestic political leadership circles. U.S. Democrats are far more vociferously questioning the usefulness of the U.S.-Saudi alliance these days. Importantly, Democrats are still highly committed to the clean energy transition so any arguments that Saudi Arabia is an important U.S. ally on oil prices falls on deaf ears. Oil price volatility is a defacto raison d’etre to support electric vehicles and the full left-wing agenda on clean tech. Thus, President Trump’s rhetorical comment that a failure to resolve U.S.-Saudi differences constructively could lead to $150 oil fails to stimulate concerns. High oil prices promoted by OPEC would undoubtedly hasten the clean tech revolution while at the same time stimulating U.S. jobs in the shale industry. If U.S. motorists don’t agree, the U.S. Congress has a piece of legislation to sell that would authorize the U.S. attorney to file anti-trust charges against OPEC for manipulating oil prices. That legislation weighed into OPEC’s deliberations in Vienna and might be one reason Qatar has chosen to quit the organization since passage of the legislation could affect U.S. infrastructure assets such as LNG export terminals and refineries owned by OPEC members. In early October, Qatar’s current energy minister told the press that peak oil demand was real and that the world was “pushing oil away as much as possible.” Other OPEC countries have expressed similar concerns privately, pitting them against fellow members who might favor policies that produce short term revenues. As Democratic leaders have been suggesting, there is a coming wave of energy innovation that could mean Saudi Arabia will play less of a role in changing global energy markets. The Saudi leadership is well aware of this existential problem and it is likely one of the reasons its role in global affairs has become more erratic. But while these technological gains are transforming global energy markets, they are not a spigot. Their exploitation requires the investment decisions of dozens of independent private companies who are following market signals and government incentives that have been unsteady of late. The gradual nature of the digital energy transformation means that temporary events, most recently the economic crisis in Venezuela and U.S. sanctions on Iranian oil, can give OPEC, and even Saudi Arabia on its own, substantial, albeit brief, market power. This proved an uncomfortable fact for U.S. President Donald Trump this fall and for the fragile global economy more generally. It is the reason the U.S. Congress is looking at legislation to defang OPEC. As the U.S. Congress debates various options, it should continue its policies supporting U.S. makers of electric cars especially because alternative engine technologies help wean the global economy off its reliance on OPEC oil more rapidly. As recent commodity price volatility and OPEC’s recent deliberations shows, that will take more than just exporting two or even three million barrels a day from U.S. shores given ongoing instability in many oil producing regions. In trade talks with China and European automakers, the Trump administration should shift to be a leading voice promoting advanced automotive technology, including for trucks, and adjust any proposed tariff rates accordingly to incentivize advance of new technologies. Congress should protect policies promoting advanced automobiles in the U.S. and consider stronger efficiency standards for delivery trucks and large freight vehicles. Congressional leaders should also press the Trump administration to quickly settle favorably with California on standards for diversified fueling options. The administration must give more weight to the fact that use of alternative fuels at home in cars and trucks (electricity, natural gas and biofuels) would free more U.S. oil for export to water down the importance of Saudi oil. It’s time to recognize that it is no longer wise to say the United States must back erratic actions of oil producing states because of their premiere role influencing global economic trends. More direct U.S. leadership to reduce the world’s vulnerability is needed, not only for one OPEC meeting, but for a more strategic future.

Relations between the two countries, long bound by common interests in oil and security, have strained over what some analysts see as a more assertive Saudi foreign policy.

The United States can do more to support negotiation efforts in Yemen and help the parties find a workable, sustainable solution to the conflict.

The United States should pressure MBS to act with greater restraint in Yemen and elsewhere.

This is a guest post by Jareer Elass, an energy analyst who has covered the Gulf and OPEC for 25 years. He is a regular contributor to the Arab Weekly.  As the 2019 budget season approaches, Saudi Arabia has made a point of announcing strong figures for the first three quarters of 2018. In a sign that Riyadh would like to continue this robust economic health into 2019, Saudi Oil Minister Khalid Al-Falih on Sunday announced Riyadh’s plans to cut crude exports by five hundred thousand barrels a day (b/d) next month. This effort would counter any buildup of oil inventories going into next year. The minister made his remarks in Abu Dhabi on the sidelines of a technical market monitoring meeting of the Organization of Petroleum Exporting Countries (OPEC) and other producers including Russia.  The Saudi minister’s statement was meant to signal Saudi Arabia’s desire to push the oil producer coalition towards an agreement to make a new round of oil production cuts at its upcoming full meeting in December. Agreement would help ensure oil prices don’t collapse, particularly as U.S. crude production continues to surge. That strategy, however, could put the kingdom directly at odds with the Trump Administration, which continues to voice concerns about high oil prices. When announcing temporary waivers for Iranian oil sanctions last week, U.S. officials specifically noted the necessity to delay full implementation of the new sanctions to prevent global oil markets from overheating. Some OPEC officials were miffed by the U.S. waivers, which they didn’t anticipate in their calculations earlier in the fall to increase production which is now contributing to the fall in oil prices. Strong economic showing is important to the Saudi government, which is now benefiting from its smartly conservative budget process for 2018, as well as fiscal reforms that have brought in more non-oil income. The Saudi Finance Ministry reported in its third quarter budget analysis that the kingdom had slashed its deficit by 60 percent from $31 billion to $13 billion in the first nine months of 2018 when compared to the same period last year. The ministry credited substantial growth in both oil and non-oil income. The kingdom’s total revenues for the first three quarters of 2018 grew by 47 percent compared to the same period last year to nearly $177 billion. That included a similarly large jump in oil revenues during the first nine months of this year to $120.5 billion compared to the same period in 2017. Saudi oil revenues rose 63 percent between the third quarter 2017 to third quarter 2018 to around $41 billion, attributable to not only higher oil prices but to the kingdom’s high production rates in recent months. However, the Saudi government believes the strides made in non-oil income so far in 2018 deserve particular credit. Non-oil income grew 45 percent from third quarter 2017 to third quarter 2018 to total $18.5 billion. Referring to the third quarter 2018 budget analysis, Saudi Finance Minister Mohammed Al-Jadaan said, “While clearly assisted by improvements in the oil price internationally, these figures also show the fruits of the successful implementation of many initiatives to develop non-oil revenues and improve spending efficiency.” The Saudi regime reported that even though the deficit had fallen in the first nine months of 2018, government spending rose by 25 percent from the first nine months of last year to nearly $190 billion in 2018. Riyadh highlighted the new Citizen’s Account social benefits system that was established at the end of 2017, as well as higher living allowances and infrastructure spending for the rise.  The Citizen’s Account system covers approximately three million families and 10.6 million beneficiaries -- the equivalent of half of the kingdom’s population – and was intended to blunt the repercussions from fiscal reforms, including reductions in domestic energy-related subsidies and the introduction of both a “sin tax” and a 5% value-added tax (VAT) -- the latter of which was implemented last January. The government anticipated spending as much as $8.5 billion in 2018 in monthly Citizen’s Account payments to recipients, who are comprised of lower- and middle income Saudi nationals. The government does not seem to be planning on curtailing the welfare assistance program in the coming year. When the Saudi government announced its 2018 budget last December, it had forecast a deficit of $52 billion. But last month, the finance minister reported that the kingdom would see a deficit closer to $39.5 billion. While fiscal reform has certainly helped – including an expected windfall of $6 billion from a year’s implementation of the VAT – the improved deficit benefited from the fact that the Saudi government conservatively based its 2018 budget on a Brent oil price of between $51-55 a barrel. Spot Brent prices are expected to average around $20 a barrel higher than that in 2018. However, as upbeat as the latest figures are, the Saudi economy still faces challenges ahead that have been exacerbated by the circumstances surrounding the death of Saudi journalist Jamal Khashoggi. In the week ending October 18th, the Saudi Tadawul stock exchange saw sell-offs totaling close to $1.1 billion. The Tadawul continued lose foreign owned stocks the following week before the Saudi government was rumored to have swiftly intervened to restore market stability.  A healthy stock market is one of the central pillars of the Saudi government’s plans to restructure the kingdom’s economy away from a dependency on oil revenues. The Tadawul has been touted as an integral component of the much-awaited initial public offering (IPO) of Saudi national oil company Saudi Aramco. The sudden drop in the Saudi stock market in light of the Khashoggi affair has raised concerns anew about whether the Tadawul has sufficient liquidity to handle Saudi Aramco shares, especially if it could be vulnerable to domestic uncertainties. Foreign direct investment in Saudi Arabia has also been dropping, reportedly by as much as 80 percent between 2016-2017 – declining to a 14-year-low. Capital flight from Saudi residents has also been on the upswing. According to a JPMorgan report, which was published prior to the Khashoggi scandal, capital outflows from residents in Saudi Arabia was expected to reach $65 billion this year, or 8.4 percent of GDP. However, this figure is notably lower than the previous year’s figure of $80 billion. Reduced foreign direct investment and increased capital flight would mean the Saudi government will have less flexibility on oil prices. Senior U.S. officials have called on Riyadh to wind down the costly Yemen war, but it remains unclear how events on the ground in Yemen will proceed. As a new U.S. Congress takes its seat and the U.S. president makes his position on oil prices well-known, OPEC is taking a cautious approach to how it communicates about oil prices. In oil markets, all eyes will be on Saudi Arabia as its policies towards OPEC and Yemen will be watched closely.

Saudi Arabia is no closer to achieving its objectives in Yemen, and international pressure to end the war is growing. The kingdom can cease its bombing campaign and still defend its national interests. 

UN officials warn that deteriorating conditions threaten disaster for Yemenis on a scale few have ever witnessed. Ending the civil war is essential, and the United States could prod the peace process.

Mohammad bin Salman isn’t just ruining his own reputation—he’s spoiling Washington’s policies across the region.

The latest Saudi explanation of what happened to journalist Jamal Khashoggi — that his murder was premeditated by his assailants — is no more acceptable an explanation than the earlier versions, that he died accidentally in a fistfight or that he left the Saudi consulate in Istanbul without leaving a trace. It defies belief that this operation wasn’t ordered at the highest level. But that’s not the point. The Saudis were never going to conduct the “complete, thorough and timely investigation,” as Secretary of State Mike Pompeo called for after meeting with Saudi leaders this month. Even President Donald Trump has now acknowledged as much, saying that “the cover-up was the worst in the history of cover-ups.” It marks a notable change in tone by the president who initially seemed more concerned with preserving his good personal relations with the Saudis than with getting to the bottom of what happened. But while the president’s tone may have changed, his policies toward Saudi Arabia have not. “In terms of what we ultimately do …,” President Trump said recently, “I’m going to leave it up to Congress.” Of course, Congress is not scheduled to return to session until the middle of next month, making the president’s plan more of an intentional delay on the bet that the outrage will blow over and less of an appeal for a firm bipartisan response. The delay is just the latest such bet by Trump. From the outset of his administration, the president has doubled down on the Saudi king and his young son, Prince Mohammed bin Salman. After all, they represented the pillar of his Middle East strategy. Trump made Riyadh his first stop on his first overseas trip and assured the Saudis he would not lecture them on their human rights record and embraced their efforts to counter Iran. He stood by Prince Mohammed despite a string of reckless Saudi moves, including blockading Qatar, kidnapping the Lebanese prime minister, imprisoning hundreds of Saudi royals and businesspeople without due process, and cutting off relations with Canada over a critical tweet. Little wonder, then, if the crown prince thought he might be able to get away with murder. This terrible saga is but the latest proof of Trump’s abdication of America’s traditional global leadership. From day one, he has made a habit of cozying up to dictators and strongmen, accepting their denials, explanations and promises even when the U.S. intelligence community said all the evidence pointed the other way. Think Vladimir Putin’s denial of Russian interference in the 2016 elections. Or Rodrigo Duterte’s insistence that the extrajudicial killing of thousands of Filipinos was necessary to win the drug war. Or Kim Jong Un’s promise to denuclearize. And now Prince Mohammed’s claim that Khashoggi’s death was an ordinary detention gone just a bit wrong. It wasn’t all that long ago that an American president, faced with such a horrendous abuse of power and gross violation of human rights, especially by a close partner, would have made clear his outrage and acted accordingly. Indeed, America’s traditional global leadership role — as leader of the free world — would have dictated a very different response than we have seen so far. What might such leadership entail? First, Washington could turn to the United Nations Security Council and demand an international investigation, including the full cooperation of the Turkish and Saudi governments, to find out what happened to Khashoggi. Given the denials and obfuscations from Riyadh, no Saudi investigation can be considered conclusive. Second, until such an investigation has been completed and those guilty are brought to justice, the United States should suspend all arms sales to Saudi Arabia, and convince its allies to do the same. The kingdom depends almost entirely upon U.S., British and French arms supplies, including for maintenance and training. That provides real leverage. The Saudis have too much invested in U.S. and Western weapons to quickly switch to Russian or Chinese substitutes. Third, the time has come to pressure Riyadh to end its indiscriminate bombing and brutal war in Yemen. Prince Mohammed started this ill-fated military mission two years ago, ostensibly to prevent Iranian inroads onto the Arabian Peninsula. But the conflict has done little to blunt Iran while killing tens of thousands of Yemenis, wounding hundreds of thousands of others and leaving millions destitute, facing wide-scale famine and disease with no help in sight. Without U.S. intelligence and weapons supplies, the Saudi and United Arab Emirates bombing effort would quickly end. Real leadership would begin with Washington reminding Riyadh that the U.S.-Saudi relationship isn’t one of equals. The White House holds most of the cards, and it is high time to use them. Doing anything less will embolden Prince Mohammed to continue his reckless behavior — and risk triggering an even greater crisis — while deeply damaging America’s credibility as a defender of human rights. Ivo Daalder is president of the Chicago Council on Global Affairs. James Lindsay is senior vice president at the Council of Foreign Relations. They are co-authors of “The Empty Throne: America’s Abdication of Global Leadership.”

Threatening a price hike might work in the short term, but it would come with serious costs to the kingdom’s reputation as a moderating influence on oil markets.