At a time when the world is struggling to cope with high inflation, the rising cost of living, and the impacts of the Ukraine war and now the Israel–Hamas conflict, a 30–40% jump in the price of Brent crude per barrel since July entails serious economic, social and political consequences. The price per barrel is edging towards US$100. While that’s less than the US$130 a barrel reached in April 2022, it could still derail or prolong the global economic recovery. What has caused the price hike and who can moderate it?
Two oil-producing states from opposite ends of the political spectrum hold the keys to affecting the price of oil: Saudi Arabia and Russia. The former is supposed to be a US ally and the latter is a bitter US adversary. Yet the two countries have acted in concert in the Organization of Petroleum Exporting Countries—Plus (OPEC+) to reduce their oil production in the name of stabilising the market. The Saudis have cut back their output by nearly two million barrels a day from a height of 11 million and Russia has dropped its production by some half a million barrels per day in the past several months, causing a shortage of supply in the global market.
Undoubtedly, both actors are driven by a desire for more revenue, but their actions also underline an alliance of grievances against the United States. The de facto and power-ambitious Saudi ruler Mohammad bin Salman (widely known as MBS) has acted for domestic and foreign policy reasons. The prince, who wants more revenue to accelerate his vision of socially modernising his kingdom and turning it into an economic powerhouse, has been offside with the US since the advent of President Joe Biden’s administration.
MBS has, most importantly, resented the president’s early criticisms of him for human rights violations and the release of US intelligence findings that implicated him in the gruesome killing of Saudi dissident and Washington Post columnist Jamal Khashoggi in Istanbul in October 2018. He has ignored Biden’s request for Saudi restraint in any action that could increase oil prices and his overtures to return Saudi–US relations to their traditional status of close friendship.
The prince has subtly engaged in a process of diversifying Saudi foreign policy, not to completely debase the kingdom’s special bonds with the US as its main security provider, but to be in a position to deflect Washington’s pressure when required. He has opted for a mutual strengthening of relations with Russia and China. He has cooperated with President Vladimir Putin within the framework of OPEC+ and refrained from openly condemning Russia’s Ukraine aggression. He had very friendly interactions with the Russian leader at the G20 summits prior to the International Criminal Court’s issuing of a warrant for Putin’s arrest for alleged war crimes in Ukraine. Meanwhile, he has offered to mediate between Moscow and Kyiv. This must be disconcerting for Washington, which has sought to limit Russia’s revenue and isolate and punish Putin for his Ukraine adventure.
Under MBS, Saudi Arabia has strengthened its trade and economic ties with China—the largest importer of Saudi oil. Riyadh has been invited to join the BRICS (Brazil, Russia, India, China and South Africa) and has even indicated a willingness to join the China-led Shanghai Cooperation Organisation as a dialogue member. It has also restored ties with its regional rival, Iran, after China brokered peace talks between the two. And it has been looking to normalise relations with Israel—a US strategic partner and bitter foe of Iran—though that the Israel–Hamas war will likely confound that project.
Putin has been doing whatever possible to drive a wedge between the US and its allies. He needs more friends and money to fund the war in Ukraine and to deflect Western sanctions, while appreciating the cooperation of Saudi Arabia as the largest and therefore most influential producer in OPEC+. As long as the Saudi–Russian alignment of interests exists, the price of oil is unlikely to drop anytime soon, unless there’s a marked reduction in global consumption, which at this stage doesn’t seem to be on the horizon, despite China’s economic slowdown. Hard times for oil consumers lie ahead.