Some analysts I trust have gotten a little too complex on this topic. Yes, there are many concrete reasons why Saudi Arabia’s intervention in the oil market at the beginning of this month makes sense. The fact that prices have not risen much since the announcement is an indication of just how quickly the world recession is destroying oil and gas demand. But the fact remains that Saudi Arabia decided to make this cut a month before the November mid-term elections. This is a calculated slap in the face to Joe Biden and the Democratic party. It is not, however an insult to the United States as a whole, as I explain in today’s video.
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Video Transcript after the jump…
So you guys know Saudi Arabia is trying to get the Republicans elected right? This isn’t even a particularly controversial statement. The Intercept is running with it, and analysts who really know Saudi Arabia, like Bruce Reidel are also saying it. Put simply, Saudi Arabia has chosen to cut the world oil supply, which should hike up US gas prices, right before the all important November Congressional elections in the United States. For the past two years, Joe Biden has been governing the country with a majority of just 8 congresspeople in the House of Representatives, and with Vice President Kamala Harris’s tie breaking vote in the Senate. If this goes away, Washington, DC spends the next two years doing nothing but government shutdowns, Biden family investigations and impeachment proceedings. The single most important factor in the Congressional elections on November 8th is probably the price of gasoline, and Saudi Arabia chose to announce taking two million barrels a day off the market on October 5th. This is particularly irritating, because Saudi Arabia is making this happen through the OPEC+ structure, established in 2016. OPEC+ includes many other countries, but is essentially a price fixing arrangement between Saudi Arabia and Russia, the world’s number two and number three producers.
The Biden administration is outraged. Anybody who cares about our war in Ukraine is outraged. How dare Saudi Arabia work with Russia to raise prices. It’s being portrayed as a betrayal of the United States, but that’s not what’s really going on here.
Folks keep pretending that Saudi Arabia is an independent country. Supposedly Saudi Arabia is some sort of independent Westphalian actor, doing what’s best for its people and /or its elites. If this were true, then I would agree with the folks talking about some kind of grand, shocking pro-Russia betrayal. But it’s not true. Saudi Arabia is not an independent political actor. It is a US colony, entirely dependent on US military equipment and support. Saudi money is poured into the US economy on a grand scale, both as insurance policies for the Saudi Royal Family, and in the form of outright bribes for US politicians. It would be absolutely insane for Saudi Arabia to act against the United States. That’s not what it’s doing. It is acting within the United States system, and it’s acting in support of the Republican party.
Saudi Arabia is in one of the worst positions, but this is what all of the world’s political actors are reduced to now, in this third decade of the second American century. Last week I laid out how Washington, DC’s 21 year program of chaos has left all potential rivals in a shambles. If the United States is unified in wanting something, there is nothing that the rest of the world can do about it. But that’s the key qualifier here. The United States is irresistible IF it’s unified on something. That’s the one saving grace that the rest of the world still has… US polarization. Without US political divisions, the world would be living under a much more demanding and regimented US world system.
China, the most powerful non-US country is a great example of this dynamic. China spent the 1980s, 90s and 2000s using the US and the world’s resources to build an economic miracle. It was able to do this because it convinced enough American actors that Chinese economic growth was good for the US too. China’s economic and diplomatic failures across the 20-teens stem from the Chinese failure to keep the majority of US political actors on their side. The US has barely begun to seriously attack China’s economy and the effects have already been disastrous for China.The China dream is still supported by some large US businesses, but that clout is steadily slipping away, as last week’s sweeping limits on Chinese tech reveal. Saudi Arabia is in an even weaker position in the long term. But in the short term it has a lot more political support than the recent news would make you think.
Compare Saudi Arabia’s relative freedom on oil prices to their constraints on Israel. This may seem surprising now, but throughout the 20th century, Saudi Arabia defined itself as a firm opponent of Israel. This opposition was fundamental to their idea of themselves as leaders of the Muslim & Arab worlds. And when the old king finally dies, this aspect of Saudi identity is expected to be entirely renounced by the Saudi government. Because if the US political scene is unified on a topic, the Saudi government has no choice but to do as they are told. This is not the case with oil prices.
The most shocking new enemy Saudi Arabia made this month is Bob Menendez, one of the most powerful Democrats in the Senate, the Chair of the Foreign Relations Committee. Menendez is one of the century’s greatest war mongers, and he was a staunch Saudi supporter throughout their murderous invasion of Yemen. Menendez desperately wants a war with Iran for his defense industry clients, and Saudi Arabia has always seemed like a good way to get there. But Menendez does seem to have finally turned on the Saudis. This is important, but less important than it seems.
Menendez’s loyalties have shifted because Saudi Arabia is directly threatening his power as a Democrat, and Saudi Arabian defense spending is all of a sudden a lot less important than NATO’s. But there are other powers in US politics that are more than fine with Saudi Arabia’s choice to limit oil production. And I am not talking about the Republicans, I am talking about a US entity that is vastly more powerful than the weapon-mad political parties that govern us. I am talking about the US oil industry. The oil industry is not as involved with day to day government as the war industry is, but its preferences matter. And they prefer higher oil prices.
More sophisticated oil industry analysts than myself have pointed out that this OPEC+ move may be more of an acknowledgement of reality than a cut in production. A decade of underinvestment means OPEC+ wasn’t hitting the old production targets anyway. But that doesn’t matter for the elections, because Markets Are Dumb.
Whether there is any effect on the real world or not, OPEC+ cuts are an upward pressure on oil and gas prices everywhere, which makes the US petroleum industry very happy. In the short term, I think Saudi Arabia is right to gamble that Republicans working with the oil industry will keep their weapons sales from being disrupted, and will keep the US-Saudi relationship limping along for another few years.
But this Saudi move is a real risk, and losing Bob Menendez, if they really have, is a significant loss. So why are they betting so hard on the Republicans at this point. Well I think it’s two things.
The first thing is 9-11, and what the Republican Party did to cover up the fact that Saudi Arabia was the country most responsible for that attack. 15 of 19 hijackers, the ideology, the leadership and the funding for that attack were all Saudi Arabian, and we all knew most of that on September 12th. But in 2001, we still needed Saudi oil, and Republican leadership used the unprecedented American unity they commanded to shift the focus from Saudi Arabia, and avoid finding any more direct connections between the Saudi government and the attacks. In the decades since many reports have emerged of the struggles of the FBI agents who were stymied in their attempts to investigate by the Bush administration. Every few years revelations of Saudi royal family-Al Qaeda connections slip out that would have left Riyadh a smoking ruin if they were known in 2002.
While I don’t doubt that there were dedicated members on the staff of the 9-11 Commission, it’s clear that they were steered away from any discussion of Saudi Arabia beyond the FBI findings they had no choice but to include. You guys have heard my 9-11 rants before, and I don’t want to risk my monetization by going into it too much, but I did come across a new smoking gun relatively recently, that I think I should mention.
You remember Bruce Riedel from the beginning of the video. He’s an interesting figure who has kind of gone to war against Saudi Arabia since their invasion of Yemen in 2015. But before that he was a consummate insider. He worked for the CIA for three decades, and finished up with five years on the National Security Council. Throughout his career he focused on Saudi Arabia, formed personal relationships with its leading figures, and led US policy on the country for the Clinton and early Bush administrations. So he was the US’s Saudi Arabia guy, in the lead-up to and including September 11th, 2011. And on page 134 of his 2016 book Kings and Presidents, he casually mentions that the 9-11 Commission never even bothered to interview him. That’s what we call a cover-up folks. And that’s what the Republican party did for Saudi Arabia.
But that’s ancient history. The unity of George W. Bush first term in office was dead and gone by 2006 if not earlier. Saudi Arabia wasn’t going to just keep supporting Republicans out of loyalty. No, they have insured their ownership of that party, by buying its leadership.
This isn’t reall a controversial point either. During Trump’s administration there were plenty of reports about Saudi Arabia paying for Trump hotel rooms they never used. But in 2021 the purchase became even more obvious. Saudi Arabia simply wrote a 2 billion dollar check to Jared Kushner, the husband of Trump’s beloved daughter Ivanka. Even the Saudi Arabian wealth fund thought this was a bad investment, but they were overridden by Crown Prince Muhammad Bin Salman. Saudi Arabia now owns the Republican party.
Between the US oil industry that secretly loves production cuts and the Republican party whose leadership MBS has purchased, I think Saudi Arabia is probably right that they can put their favored party back in power without too many short term consequences. The only wild card is Republican voters. Are they happy to be voting for the 9-11 cover-up party? I dunno.
In the long-term, I remain convinced that the Saudi Arabians are screwed. Think back to the subtle power of the US oil industry. They are a big fan of Saudi Arabian production cuts. But over the past decade they’ve also learned how useful the US military and US sanctions can be in shutting down competing petro-states like Iraq, Iran, Libya, Venezuela, and now Russia. Big oil has welcomed Saudi attempts to shut down production. But what happens when big oil realizes they can shut down a lot more Saudi production by turning against the country than by working with it? Saudi Arabia may find themselves missing all of those Democratic war-mongers that they have alienated this month. Donald Trump and his power aren’t going to last forever.
Saudi Arabia needs to worry about the next time the US opinion on their country is unified. It won’t be like 2001 when Washington, DC decided to cover up the Saudi role in 9-11 because we needed their oil. Washington, DC might just unite to take out the final competition to US oil and gas export dominance.