Jeddah, Saudi Arabia
Soaring gas prices may have been the driving factor behind President Joe Biden’s decision to visit Saudi Arabia, but the American effort to secure increased oil production will be more diplomatic than overt pressure, according to US officials.
The approach will reflect the realities of a relationship that has been under significant strain, but also an awareness of market dynamics that limit the flexibility – and capacity – the Saudis have to simply ramp up production on request.
“Everyone knows the goal here,” a US official said of the push for increased production. “But the approach is important – both from the Saudi perspective and for our domestic audience.”
That means Biden won’t be boarding Air Force One back to Washington with explicit production increases, officials said. Instead, the expectation is that there will be an understanding that will be the case in the months ahead – done within the context of increased output levels in the OPEC+ cartel laid out at its August meeting.
“Before we announced the trip, you saw an announcement from OPEC+ on accelerating and increasing production. We will discuss the issue here. And we are hopeful that we will see additional actions by OPEC+ in the coming weeks,” national security adviser Jake Sullivan told reporters aboard Air Force One on the way to Jeddah.
“I don’t think you should expect a particular announcement here bilaterally because we believe any further action taken to ensure that there is sufficient energy to protect the health of the global economy will be done in the context of OPEC+,” Sullivan said.
For months, key Biden administration officials have traveled to Riyadh to lay down the conditions for the meeting – trips that underscored a more holistic approach to addressing concerns from a long-time ally that has come to question US commitment to the region.
Those meetings have touched on an array of issues, from regional stability and security to climate, technology and investment in a growing and rapidly diversifying kingdom. Yet throughout, it was clear that at some point, a meeting with Saudi Crown Prince Mohammed Bin Salman would be a critical moment to solidify a relationship in repair.
The meetings also marked an effort to provide assurances to Saudi officials that despite Biden’s statements about making the kingdom “a pariah state” in the wake of the murder of journalist Jamal Khashoggi, which the Biden administration has said was ordered by MBS, the US viewed the relationship as critical for regional stability. The Crown Prince has denied involvement.
Despite the repeated insistence by Biden and other officials that any interaction with MBS would occur in the context of the Gulf Cooperation Summit or in a bilateral meeting with King Salman and an array of top Saudi officials, the White House announced the day before his arrival that Biden would hold a separate bilateral meeting with MBS.
In short, the idea that Biden can simply come to Saudi, shun MBS and demand increased production and expect results is both shortsighted and the opposite of the approach Biden will take, officials said.
“Part of the frustration on the Saudi side has been the idea that they can be kicked or ignored for the better part of a year and then all of the sudden snap to when a US president calls,” one Riyadh-based diplomat said. “It may sound transactional, but at some point any leader would ask the question: ‘What are we actually getting out of this?’”
For Saudi officials looking for a firm idea of American goals and intentions with both bilateral relationship and more broadly in the region, Biden’s ability to deliver that answer to that question is a critical component of the visit – one expected to be bolstered by a series of commitments across several areas when Biden departs.
Still, the issue of oil hangs over everything in the next two days, where US officials will focus the conversation less on specific asks than their analysis of both the acute and looming risks to the global market as Russia’s invasion of Ukraine continues. The approach has delivered some results already, with OPEC+ agreeing to boost output last month in a decision applauded by Biden and other White House officials.
The US approach is also grounded in the reality presented by Saudi’s own commitments. The kingdom has no desire to rupture the OPEC+ coalition, which includes Russia and is viewed as a critical element of maintaining stability through an increasingly turbulent last several years.
Any decision to increase production would be made within that structure, and as such, would likely need to be tied to market realities.
“I think the conversation is really focused on, given current market conditions, how do we see things? How do we see the next six months, and how can we keep markets balanced in a way that contribute to continued economic growth? So that’s the common focus of ours, with not just the Saudis, but other producers,” a senior administration official said.
Biden gave a window into the balancing act last month when asked if he’d explicitly ask Saudi King Salman or the Crown Prince for increased production.
Biden said no, then quickly broadened out his pitch to oil producers in the region outside of just Saudi.
“I’ve indicated to them that I thought they should be increasing oil production, generically – not to the Saudis particularly,” Biden told reporters. “And I think we’re going to – I hope we see them, in their own interest, concluding that makes sense to do.”
But there are only two major producers that have the capacity to deliver a tangible increase – Saudi and the United Arab Emirates. Biden is set to hold a bilateral meeting with the UAE’s leader Sheikh Mohammed bin Zayed al-Nahyan the day after he sits down with top Saudi officials.
While US officials believe both countries have the capacity to increase production, they have been careful not to prescribe specific numbers, something that underscores an awareness of the limitations that exist.
“Saudi Arabia has a unique role in the global oil market because it has developed and sustained spare capacity,” Ben Cahill, a senior fellow in the Energy Security and Climate Change Program at the Center for Strategic and International Studies, wrote this week. “If it maximizes output and burns through its spare capacity, there will be no room to cover a production shortfall in other countries due to war, accidents, or weather-related outages.”
With Biden’s arrival, that market reality has converged with the complex mix of political and diplomatic dynamics that US officials have been grappling with for months. Biden’s visit will go a long way to determining the future of the US-Saudi relationship during his time in office.
What it won’t do, however, is significantly change the price at the pump in the near term.
“If anyone’s under the impression MBS can just flip a switch and dramatically drive down gas prices, they simply have no idea what they’re talking about,” the Riyadh-based diplomat said.
July 15, 2022 at 09:39PM