Skip to content Skip to Search
Skip navigation

Emerging ‘consequences’ of the US-Gulf fallout over OPEC’s cuts

Biden Reuters/Sarah Silbiger
US President Joe Biden pledges “there will be consequences” for Saudi Arabia
  • Big tech and weapons deals may stall
  • President Biden’s midterm election prospects weakened
  • Saudi Arabia says cuts are ‘purely economic’
  • Concerns about Gulf’s geopolitical shift from West to Russia and China 

OPEC+’s announcement last week of a two million barrel per day (bpd) production cut from November has rocked already fragile US-Gulf relations. 

Joe Biden pledged that “there will be consequences” for Saudi Arabia in the same week that the UAE president flew to Moscow to meet Vladimir Putin.

In response to Biden’s threat of retaliation, Saudi Arabia has defended the production cuts. 

Saudi’s minister of foreign affairs, Prince Faisal bin Farhan Al Saud, told Al Arabiya in an interview on Wednesday that the OPEC+ decision was “purely economic, and it was taken unanimously by the member states”, before adding that OPEC+ countries “seek to stabilise the market and achieve the interests of producers and consumers.”

But with the world in the grip of an energy crisis, the interests of consumers seem to have fallen by the wayside.  

OPEC+’s move puts the oil market on course for further tightening ahead of winter, with the EU having also announced an embargo on Russian oil, which is due to take effect on December 5. 

The potential ramifications of the cuts stand to be far-reaching. 

Firstly, they weaken Biden’s prospects in the US mid-term elections next month, for which gasoline prices are regarded as a pivotal issue. 

But it will also exacerbate global inflation and bolster Putin’s key source of funding for his ongoing invasion of Ukraine. 

OPEC
OPEC+ partners: Saudi Crown Prince Mohammed bin Salman and Russian president Vladimir Putin. Picture: Reuters

“The decision was most likely more about economics than geopolitics,” Neil Quilliam, associate fellow at Chatham House’s MENA programme, told AGBI.

“However, it is all about the optics right now and that has overshadowed OPEC+’s move to offset against global recession and the collapse of the oil price.  

“It is clear that both the White House and Congress have taken off the gloves and intend to strike a blow back.” 

The question many are asking is just how severe that blow will be. 

Biden last week called on his administration and Congress to explore ways to boost American energy production and reduce OPEC+’s control over energy prices. 

Meanwhile, on Monday this week, Democratic senator Bob Menendez, chairman of the senate foreign relations committee, said the US must immediately freeze all cooperation with Saudi Arabia, including arms sales.

As the OPEC+ kingpin, Saudi is likely to feel the strongest impact of the US’s retaliatory action, according to industry commentators. 

“I would expect the US to aim its frustrations and disappointment squarely at Prince Mohammed [MbS] and Saudi Arabia, doing so while concurrently offering the other GCC states an out to profit from the consequences of whatever actions Washington takes against Riyadh,” said Douglas London, non-resident scholar at the Middle East Institute and a retired senior CIA operations officer. 

However, London noted that while Biden can easily allow various Congressional initiatives to shape the US response, he will need to be mindful of the impact on the US’s own economic interests.

“Reducing military cooperation can translate into lost revenue for the massive interests of the US defence industry and Saudi Arabia is also eager to leverage US technology and investments for its development and facilitation of Vision 2030 goals,” London added.

OPECReuters
OPEC+’s oil production cut of two million barrel per day puts the economic interests of producers first. Picture: Reuters

US arms deals

As the roadmap for diversifying the Saudi economy, Vision 2030 requires billions of dollars to establish a whole host of new industries. The bolstered oil prices will help fund these, but the US is a critical partner in the expertise and investment clout it can offer. 

Neither side will want to jeopardise this and Biden will also be cognisant of the sizeable economic loss that would come from cutting off the US’s arms supplies to the kingdom. 

“Both the UAE and Saudi Arabia spend billions of dollars on US arms,” current affairs commentator Khalifa Al-Suwaidi, said. 

“Suspending the sale of US arms to those countries would hurt the US economy and cause further diplomatic tensions.

“While American policymakers believe that the two countries had already chosen to side with Putin, it’s important to note that neither one of the countries feels beholden to the US.”

Both Saudi and the UAE have been vocal about their concerns that Washington has not provided the level of security they desire. 

In February 2021, Biden announced that he was ending US support for offensive operations led by Saudi Arabia against Iran-aligned Houthi rebels in Yemen.

The Houthi attacks on the UAE in January this year were met with an anaemic response from the US. 

While Saudi and the other Gulf states still rely heavily on the US as a supplier of arms and, to a lesser extent security, some analysts think the production cuts reflect an ongoing reconfiguration in economic and political partnerships.  

“Saudi Arabia, the UAE and Russia all share an interest in high oil prices,” Annelle Sheline, research fellow in the Middle East program at the Quincy Institute, said. 

“Likewise, in an increasingly multipolar world, Saudi Arabia and the UAE have few incentives to antagonise Putin in order to stand with the US, whose guarantee of security no longer feels so iron-clad.

“As weapons sales and security assistance continue to provoke a certain amount of pushback from Congress, in particular relation to Saudi and Emirati hostilities in Yemen, the Saudis and Emiratis are looking to diversify their security portfolio.”

Reuters/Ahmed Jadallah
Aramco’s Shaybah oilfield. Picture: Reuters/Ahmed Jadallah

Unravelling trade ties

Despite these growing divergences, the US, Saudi Arabia and the UAE share many commercial interests which experts believe is likely to temper the US’s reaction. 

“I would not expect any major policy efforts to discourage trade and investment ties between the US and UAE or Saudi Arabia,” Karen Young, senior research scholar at the Centre on Global Energy Policy at Columbia University, said.  

“There is likely to be Congressional action to stall existing arms sales in process, but I do not think there will be a drastic or more permanent effect on defence trade ties to the region.” 

Neil Quilliam added: “US-Saudi ties are multidimensional and so are US-GCC ties, so any moves that the US government makes right now are unlikely to be longlasting or cause permanent damage to business opportunities and trade ties.”  

Total trade between the US and the UAE hit $22.4 billion last year. The UAE ranked as the 20th-largest export market for the US and its largest export market in the MENA region, with $16.7 billion worth of exports delivered in 2021, and more than 1,500 US companies operating in the country.

For its part, the US imported $5.6 billion of goods from the UAE in 2021.

Meanwhile, the US ranks as Saudi Arabia’s second largest trading partner, and Saudi Arabia is one of the US’s largest in the Middle East. 

In July 2022, US exports to the kingdom stood at $895 million while its imports stood at $2.19 billion, reflecting the fact that Saudi Arabia is the third leading source of imported oil for the US, providing about half a million barrels per day to the US market.

“I think the US economy is not in a position for the White House to pursue any policy that might dent trade ties and investment with Saudi Arabia and the UAE,” Sami Hamdi, managing director of the International Interest, a global risk and intelligence company, said. 

“Moreover, there is a clear Chinese push into the Gulf markets that is gathering momentum as a result of increasing dissatisfaction with US policy.

“Yet, the recent cuts are part of a personal issue between Biden and the Saudi Crown Prince.

“If Biden believes he is on the cusp of becoming a political lame duck, he may seek to impose last-minute measures to punish Riyadh.

“The White House has often threatened to introduce stricter anti-trust laws to allow OPEC states to be prosecuted in the US over oil policy.” 

Douglas London foresees a range of possible moves. “I would anticipate measures that reduce intelligence and logistical support to Saudi war efforts concerning Yemen; downgrading Saudi protection from US antitrust laws; and complicating Riyadh’s commercial ventures with US companies that instead optimises American firms’ ability to do business with the other GCC states, namely Kuwait and Qatar,” he said. 

Latest articles

Oman UAE deals Sultan of Oman president of UAE

Oman and UAE sign deals worth $35bn

The UAE and Oman have announced a host of new commercial and business deals worth a total of AED129 billion ($35 billion). The partnerships were agreed during Monday’s state visit to the Emirates by the ruler of Oman, Sultan Haitham bin Tariq al Said.  Investment and collaboration agreements covered areas including renewable energy, green metals, […]

A silver trader in his shop in Ahmedabad, India. India is sourcing an increasing amount of its silver from the UAE

India’s silver imports from UAE on the rise

Supplies of silver to India from the UAE have increased this year, as the Emirates’ exporters benefit from an agreement signed between the countries two years ago. The India-UAE comprehensive economic partnership agreement signed in 2022 has significantly boosted imports, according to a report by Indian English-language business newspaper The Financial Express.  The UAE route […]

A worker at Al Faw Grand Port. The Development Road project aims to connect the port with Turkey

Gulf to collaborate on $17bn Suez Canal road and rail rival

The $17 billion “Development Road” project is moving ahead after the UAE, Iraq, Qatar and Turkey signed a quadrilateral cooperation agreement.  The road and rail collaboration aims to tie the Al-Faw Grand Port in Iraq’s oil-rich south to Turkey, thereby shortening travel time between Asia and Europe in a bid to rival the Suez Canal. […]

A flooded residential area in Dubai. New drainage infrastructure should be nature-based, say experts

Concrete or sponge? Dubai’s post-flooding options

In the wake of last week’s floods, retrofitting Dubai with traditional, concrete-based drainage systems would be expensive, time-consuming and complicated. As an alternative, authorities should look to nature-based solutions, industry professionals told AGBI. “Dubai should not repeat the mistakes that have been made in most of the Western world,” said Ronny Berndtsson, professor in water […]