Yves here. I’m not an expert in the Saudi royal family, but recall that Mohammed bin Salman was definitely not the US preference to become prime minister and there was reason to think the US was trying to foment the ouster of MbS in favor of a more tractable ruler. The US should have gotten the memo that MbS was not going anywhere via the Crown Prince’s 2017 power consolidation, in which he incarcerated hundreds of royals, government officials, and super rich at the Ritz Carlton and reportedly got them to sign away much of their wealth. My impression was that the US continued to treat MbS as a vassal.
One reason the US assumed Saudi Arabia would stay in the US sphere of influence was its status as a US arms buyer. Cato discussed in 2022 that the assumption that weapons sales conferred leverage over Saudi Arabia appeared to be false. And their piece didn’t consider that Russia was demonstrating in Syria that its weapons were at least a match to those of the US, and in many categories superior (in particular air defense) and at a lower price point. Admittedly a transition would be very difficult and costly but if MbS thought it would be pro-survival to diversify his weapons buy, those impediments would be deemed necessary to manage. .
By Simon Watkins, a former senior FX trader and salesman, financial journalist, and best-selling author. He was Head of Forex Institutional Sales and Trading for Credit Lyonnais, and later Director of Forex at Bank of Montreal. He was then Head of Weekly Publications and Chief Writer for Business Monitor International, Head of Fuel Oil Products for Platts, and Global Managing Editor of Research for Renaissance Capital in Moscow. He has written extensively on oil and gas, Forex, equities, bonds, economics and geopolitics for many leading publications, and has worked as a geopolitical risk consultant for a number of major hedge funds in London, Moscow, and Dubai. Originally published at OilPrice
- Saudi Arabia is set to join the Shanghai Cooperation Organisation as a ‘dialogue partner’.
- The SCO is the world’s biggest regional political, economic and defence organisation both in terms of geographic scope and population.
- This latest step by Saudi Arabia away from the U.S. and towards the China-Russia axis should come as no surprise to anyone.
Saudi Arabia’s very public announcement last week that its cabinet had approved a plan to join the Shanghai Cooperation Organisation (SCO) as a ‘dialogue partner’ is the surest sign yet that any U.S. efforts to keep it out of the China-Russia sphere of influence may now be futile. The Kingdom had already signed a memorandum of understanding on 16 September 2022 granting it the status of SCO dialogue partner, as was exclusively reported by OilPrice.com at the time. However, Saudi Arabia did nothing to encourage the release of the news at that point, unlike now – just after it resumed relations with Iran, in a deal brokered by China.
The SCO is the world’s biggest regional political, economic and defence organisation both in terms of geographic scope and population. It covers 60 percent of the Eurasian continent (by far the biggest single landmass on Earth), 40 percent of the world’s population, and more than 20 percent of global GDP. It was formed in 2001 on the foundation of the ‘Shanghai Five’ that was set up in 1996 by China, Russia, and three states of the former USSR (Kazakhstan, Kyrgyzstan and Tajikistan). Aside from its vast scale and scope, the SCO believes in the idea and practice of the ‘multi-polar world’, which China anticipates will be dominated by it by 2030. In this context, the end of December 2021/beginning of January 2022 saw meetings in Beijing between senior officials from the Chinese government and foreign ministers from Saudi Arabia, Kuwait, Oman, Bahrain, plus the secretary-general of the Gulf Cooperation Council (GCC). At these meetings, the principal topics of conversation were to finally seal a China-GCC Free Trade Agreement and to forge “a deeper strategic cooperation in a region where U.S. dominance is showing signs of retreat”.
This idea was the centrepiece of the declaration signed in 1997 between then-Russian President, Boris Yeltsin, and his then-China counterpart, Jiang Zemin. Veteran Russian Foreign Minister, Sergey Lavrov, has since stated that: “The Shanghai Cooperation Organisation is working to establish a rational and just world order and […] it provides us with a unique opportunity to take part in the process of forming a fundamentally new model of geopolitical integration”. Aside from these geopolitical redesigns, the SCO works to provide intra-organisation financing and banking networks, plus increased military cooperation, intelligence sharing and counterterrorism activities, among other things. The U.S. itself applied for ‘observer status’ of the SCO in the early 2000s but was rejected in 2005.
This latest step by Saudi Arabia away from the U.S. and towards the China-Russia axis should come as no surprise to anyone who has been watching developments in the Kingdom since the rise of Crown Prince Mohammed bin Salman (MbS) from around 2015. At that point, he was not Crown Prince (the heir designate position) – that role was held by Muhammad bin Nayef (MbN) – but rather Deputy Crown Prince with burning ambition to take the number one succession spot upon the death of King Salman. His stint as Defense Minister was disastrous, with the dramatic escalation of the war against the Houthis in Yemen – including indiscriminate bombing of civilian targets – roundly condemned by the West. This led the German intelligence service, the Bundesnachrichtendienst (BND), to leak an abridged internal-only assessment report of MbS to various trusted members of the press that stated: ‘Saudi Arabia [under MbS] has adopted an impulsive policy of intervention.’ It went on to describe MbS in terms of being a political gambler who was destabilising the Arab world through proxy wars in Yemen and Syria.
In order to rebuild his reputation with a view to usurping MbN as Crown Prince, MbS came up with an idea that he thought would win over senior Saudis who supported his rival. That idea was to float a stake in the Kingdom’s flagship company, Saudi Aramco, through an initial public offering (IPO), as analysed in depth in my latest book on the global oil markets. In theory, the idea had several positive factors going for it that would benefit MbS. First, it would raise a lot of money, which Saudi Arabia needed to offset the economically disastrous effect of the 2014-2016 Oil Price War that it had instigated. Second, it would likely be the biggest ever IPO, thus boosting Saudi Arabia’s reputation and the breadth and depth of its capital markets. And third, the new money from the sale could be used as part of Saudi Arabia’s ‘Vision 2030’ development plan aimed at diversifying the Kingdom’s economy away from a reliance on oil and gas exports.
MbS pitched the idea to the senior Saudis based on very specific benchmark targets. First, the flotation would be for 5% of the company. Second, this would raise at least USD100 billion, which would value the whole company at US$2 trillion. Third, it would be listed not just on the domestic Tadawul stock market but also on at least one of the world’s biggest and most prestigious stock markets – the New York Stock Exchange and the London Stock Exchange were the exchanges MbS had in mind. None of these targets was hit, of course, as the more information was made known about Saudi Aramco to international investors the more they regarded it as an omni-toxic liability, including financially and politically.
At that point, China stepped in with an offer to save MbS’s face, an offer that he has apparently never forgotten. The offer was that China would buy the entire 5% stake for the required US$100 million, and it would be done in a private placement, meaning no possibly embarrassing details about anything surrounding the deal would ever be made public, including to those senior Saudis who opposed MbS. Although the offer was declined as King Salman did not at that point want to alienate the U.S. any further than had already been done by launching the 2014-2016 Oil Price War with the intention of destroying or disabling the then-nascent U.S. shale oil sector, the relationship between Saudi Arabia and China blossomed from that point onwards. A little under a year before the Russian invasion of Ukraine in February 2022, Saudi Arabia was already so aligned to China that Saudi Aramco’s chief executive officer, Amin Nasser, spent several days at the annual China Development Forum hosted in Beijing, during which time he said: “Ensuring the continuing security of China’s energy needs remains our highest priority – not just for the next five years but for the next 50 and beyond.” One year later, and just a few months after the Russian invasion of Ukraine, Aramco’s senior vice president downstream, Mohammed Al Qahtani, announced the creation of a ‘one stop shop’ provided by his company in China’s Shandong. He said: “The ongoing energy crisis, for example, is a direct result of fragile international transition plans which have arbitrarily ignored energy security and affordability for all.” He added: “The world needs clear-eyed thinking on such issues. That’s why we highly admire China’s 14th Five Year Plan for prioritising energy security and stability, acknowledging its crucial role in economic development.”
At the same time as this relationship was moving up several gears, so was the relationship between Saudi Arabia and Russia. By the end of the 2014-2016 Oil Price War, as also analysed in depth in my latest book on the global oil markets, the U.S. shale oil sector had reorganised itself into an oil-producing machine that could survive on prices as low as US$35 per barrel (pb) of Brent if necessary. Saudi Arabia’s budget breakeven price then was over US$84 pb and there was no way it could compete with the U.S. Saudi Arabia desperately needed to push oil prices back up to repair its budget but was unable to do so because its disastrous Second Oil Price War (the first being the 1973/74 Oil Crisis) had critically undermined its credibility with other OPEC members and with the global oil market. At that point, Russia had stepped in to support the OPEC oil production cuts in late 2016 aimed at bringing oil prices back to levels that allowed OPEC members to begin to repair their decimated finances. This support has continued ever since and has formalised into the ‘OPEC+’ grouping.
Both Russia and China know how to leverage such relationships, as they have been doing in the Middle East ever since the U.S. withdrew from the Joint Comprehensive Plan of Action with Iran in 2018, Syria in 2019, and Afghanistan and Iraq in 2021. These combination of factors put China in the position of being able to broker the relationship normalisation deal between Saudi Arabia and Iran – the leaders of the Sunni Islam world and the Shia Islam world, respectively. Although White House national security spokesperson, John Kirby, did observe tersely at the time that the deal between Iran and Saudi Arabia “is not about China”, it absolutely was about China. What it absolutely was not about was the U.S.
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In his latest New Atlas video Brian Berletic talks about how USA tries to keep Middle-Eastern countries in check by creating tensions between them and then offering protection, China and Russia offer peace and prosperity to lure them in to their sphere of dignified collaboration.
If USA started actually competing in that field instead of being the “global enforcer”, we might see a decent world even during my lifetime…
How sad it is that it is to see just a few in power with no reverse gear and zero diplomatic skills which are causing a lot of turmoil everywhere. The US does not deserve herself having those individuals in core positions, particularly the one in top position. Frankly the problem looks even worse in Europe.
Thank you, Ignacio, and buena semana santa.
Unfortunately, diplomatic skills in these (types of) circles are often seen as a weakness. Diplomats who aren’t gung ho are unlikely to prosper, at least in the US and UK and, I imagine, the EU and Australia increasingly. It’s the same with a Keynesian approach to economics / political economy in finance ministries.
One hopes Aurelien / David chimes in as he’s a former diplomat and, on his Substack, which I urge NC community to read, recently wrote about the US’ attitude towards Russia after the Berlin wall fell and USSR dissolved.
+ uno, gracias, grazie, merci, danke
Missed the initial Substack notice so bookmarking now, and glad you mentioned it.
Thank you, Q.
Just watched that video over at New Atlas. And his latest on Syria regarding US forces under increasing military attack and suggesting they can’t respond as much because they lack ATACM’s and other items because it’s all used up in Ukraine. Most jarring point about US leaders is how completely out of touch with reality they are and how obsessed with their neocon project they can see nothing else. Watching the video he had of some chic using fancy language to explain how up-standing US policy of freezing and starving Syrians to death was magnificent display of double talk.
The video embedded in Brian Berletic’s Syria piece was a real eye-opener. The US spokesperson said flat out the goal was to starve and freeze the syrians and that’s why we occupy their territory. I guess that’s also why we refuse to allow aid after the recent earthquake. He’s always worth watching.
Don’t forget the Isr*eli’s bombing Syrian airports twice since the earthquake, absolutely disgusting https://www.theinteldrop.org/2023/03/22/israeli-jets-bomb-syrias-main-hub-for-earthquake-aid-deliveries/
Historians in future will say that the greatest failure of US foreign policy was to virtually force Russia and China into a mutual alliance with each other. The second greatest failure will be seen to be the end of the Petrodollar due to neglect of the US-Saudi relationship. And the reason for this gross neglect will be seen to be the obsession of the US elite with the Ukraine and also China. Well maybe not neglect is not the right word. Trump, for all his many faults instinctively knew to value the Saudi relationship and understood how it worked. Biden went out of his way to blow up that relationship like a petulant child which left a wide lane for China to go cruising down. And historians down the track will think to themselves ‘How could these people have been so stupid? So short sighted?’
Thank you and well said, Rev.
Do you remember how Trump was mocked by the usual suspects for joining a sword dance before a banquet on his state visit? One wonders if these people who pride themselves on their education, outlook etc. understand how the world works outside the ACELA corridor, Westminster etc (and how Zone B sees them).
I should have added that, further to the British government’s proposals to reform football and the BBC’s explanation that this is to stop KSA from buying more clubs, the UK, and US, must think that KSA does not pay attention to their games.
RK
Leveraging the payments system to sanction Russia is the beginning of the end (I know you know this, just to clarify for anybody else reading this).
Every independent country (anybody really believe Western democracies elect people who represent the majority of people???) in the world must be thinking why would I use the kind of money where the entity that makes that money can say, “I don’t like what you do, so YOUR “money” is now worthless”
‘How could these people have been so stupid? So short sighted?’
Policies that imiserate most of the population have no deleterious affect on the 1% and I imagine that the wealthy think it will even make them wealthier.
I think maintaining the empire harms the vast majority of US citizens so I’m all for it collapsing. It won’t be painless, but like exercise or diet, it will be healthier for the vast majority of the people of the world…
Saudi Arabia moving to the China sphere is largely inevitable given the following:
a) The selective default on US Treasuries held by Russia;
b) Seizing Venezuela’s gold because we did not like how they voted;
c) Trying to impose a buyer’s cartel /price cap against Russia (didn’t it occur to The Blob that the Saudi’s would think “if we let this happen to Russia, we could be next?”)
d) China is a rising power and I think manufactures a few things.
e) Iraq is largely a US colony because its +/- $100b held at the Fed, which I assume is almost all of its sovereign wealth. I believe that the Saudis have $700b at the Fed, and they would be idiots not to diversity given a) and b) above.
f) What does the US have that Saudi Arabia wants? Weapons and airliners. Russia can give Saudi Arabia weapons, and Boeing is not the only game town.
Plus, isn’t China buying more of what Saudi Arabia sells?
I agree with schmoe. How can KSA watch the US&friends keep confiscating other countries savings and not think “that will be us in the near future”?
SCO as a defense organisation? Not sure about that.
Well, according to the Secretary-General of the SCO 2016-2018, Rashid Alimov:
The way it pursues the security just mey seem odd to a western observer (Alimov, again):
I guess one could say SCO is defending it’s members against the worst the current version of the western liberal democracy has to offer.
It is more of a defensive organization that NATO for sure…
Maybe the SCO can be an economic defense organization against the US and their sanctions.
Thank you, Yves.
You are correct about MbS not being the US’ choice to become PM. Not just PM, but crown prince, too.
The US wanted Prince Nayef to succeed king Abdullah and Nayef’s son, another Mohammed, to become crown prince. There are / were rival factions in the ruling family. MbS has not forgotten that the US favoured another branch of the family and sought to divide the Sudairi seven (branch).
The al Saud family may be bad, but there are rarely mad. They have a long, institutional memory*, know what it takes to gain and retain power since they emerged in the central Najd region and allied with the al Wahhab** clerical dynasty in the mid 18th century and began their long march to dominate the peninsula, and aren’t about to go down with the USS Uncle Sam.
*For example, no one whose family has not been in what is now KSA for at least 3 generations may serve in the national security apparatus.
**With whom princes still marry. Princesses may now marry or remarry oligarchs.
It’s little known that many Saudi officials and even members of the al Saud family, including women, study at Georgetown. They often stay at the Cloisters.
Dad was one of the royal family’s doctors, taught medicine and advised on public health there (and the wider MENA region when KSA paid) from 1992 – 2015.
Yes, how the political dynamic has changed since the meeting on the Quincy between Abdul Aziz (bin Saud) and FDR! Even since the 1974 Oil Crisis period where Faisal showed a remarkable independence from the US/Saudi arrangement. There are not a few in SA who believe his assassination the next year was not about a family dispute.
My own dad worked for Faisal in the 60s and 70s. I believe that he was privy to the foreign policy considerations of the period. He also mentored some of the next generation of princes, who, as you note, were educated at Georgetown and Princeton.
While largely ignorant of the internal dynamics of SA over the past several decades, I must confess that MBS is full of surprises. I’d thought that demographics would do in the House of Saud by now. But, as you also note, when push comes to shove the family sticks together.
Thank you, E.
We still keep in touch with his former colleagues and their families and host them in England and Mauritius. They, especially the women, are delighted with the changes and support MbS.
Colonel Smithers,
If you would care to elaborate on what they like so much about MbS, I for one would love to hear it.
The author says “the U.S. shale oil sector had reorganised itself into an oil-producing machine that could survive on prices as low as US$35 per barrel.” I have strong doubts about that. Shale oil has been floated on free money and debt, and I would like to see some proof it is making profits even now. Depletion of the best fields and rising interest rates may spell big trouble for the industry.
WSJ had an interesting article on that – “U.S. Shale Boom Shows Signs of Peaking as Big Oil Wells Disappear”:
https://www.wsj.com/articles/u-s-shale-boom-shows-signs-of-peaking-as-big-oil-wells-disappear-2adef03f
No longer posting as David.
There’s no doubt that the US (and other nations for that matter) believed that arms sales to SA would provide leverage. This is logical enough: the Saudis were dependent on the US for spares, support, training and just about everything else. In turn, the Saudis had lots of Americans (among others) in SA as effective hostages against attack, and the revenues from arms sales were also a kind of protection money paid by the royal family. The Saudi armed forces were not serious, and never intended for fighting, and the Air Force in particular was essentially a flying club for some of the princes.
The war in Yemen changed all that. MbS took the country and the military off in directions that had never been expected, and suddenly the flying club started dropping bombs on people. As is often the case in such situations, the roles were reversed and the US was dragged along with the Saudis. I’ve been told that the Saudis actually came to the US and asked for help with targeting, which is a high skilled activity that they had no idea how to do, and that the US agreed to help them, to avoid making an already bad situation worse.
But it does seem as if the old oil-protection-arms sales model has finally broken down. The US cannot “protect” SA against Iran, that much is clear, but the Chinese can at least partly remove the threat by negotiation. So why not try them?
My guess is a bit** of this is Saudi ‘interference’ in US elections, they’d like to be done with Obama/Biden admin and have Trump back in power. **Far from the only reason, but the public nature of the shaming of Biden makes me give some credence to it. Joe and the DNC associated permanent state went after Netanyahu for much the same fear. The USA isn’t going to be kicked out, just kicked down.