Waning alliances

Saudi-US alliance waning?

In the early spring of 1945, as Allied forces surrounded the battered remains of Hitler’s Wehrmacht, the American president, Franklin Roosevelt, was planning for the future. He had just been elected to an unprecedented fourth term and wanted to utilize that time on distinctly post-war projects. 

One of the first things Roosevelt planned to do after the war’s end was to work with the relatively young nation of Saudi Arabia. He wanted to engage with the various princes and discuss with them how best to enter the modern, post-war world. Unfortunately, Roosevelt died right before the war ended and never had a chance to work on what he called his Saudi project.

In the ensuing decades, one thing plucked that the Kingdom from relative obscurity: oil. Lots of it.

The oil reserves that exist far beneath the scorching Arabian desert have kept the Saudi family at the proverbial head of the table when it comes to the Middle East-North Africa region and beyond. Today, Saudi Arabia’s influence extends well into North America. 

So what’s going on when the United States repeatedly teams up with Saudi Arabia to accomplish its foreign policy? 

To the United States government, no ally is more faithful than Saudi Arabia. But does its president, Barack Obama, really tow this line?

Alliances can change quickly in the Middle East. And nobody more than President Obama would like to re-visit an option that was once a very viable one: warming up to Iran. For the last few years Obama has made clear his intentions to pivot towards Iran more boldly, which has outraged many Saudis and American senators alike. Obama has not interfered with Bashar Al-Assad, an Iranian ally. Obama has not acted to stop Iranian programs that seek to enrich Uranium. 

Just last month, it was revealed that the American president had written his fourth letter to Ali Hosseini Khamenei, Iran’s Supreme Leader. Obama clearly would like to open up America’s relations with Iran. Doing so would be a blow to ISIS and other such outfits across the MENA region.

On the other hand, when Saudi’s King Abdullah told President Obama quite publicly that to deal with Iran, he must “cut off the head of the snake,” it was a startling rebuke and challenge to growing Iran’s power in the region.

In the meantime, old alliances can die-hard. Sources that spoke to TRENDS on the condition of anonymity say that America and Saudi are working together to keep oil prices at record lows. Doing so, they say, is a huge blow to the Russian economy and the prestige of its leader, Vladimir Putin. When oil sinks below $80 a barrel on the world stage, Putin’s ability to leverage power gained from his country’s oil reserves practically dries up overnight. Call it payback for Putin’s involvement in Ukraine.

The economic bravado is working brilliantly. Just last month, the Russian ruble collapsed to an all-time low against the American dollar.

The heightened supply of oil thanks to the Saudis suggests two things: They’re aware of a solid Russian-Iranian friendship. Secondly, they don’t want Obama to show any more sympathy toward Iran. Yet just how solid is the Saudi-American alliance? 

Jacob H. Yahiayan, managing member of Continental Advisory Services LLC, a New York-based family office, was formerly a Beirut-based investment banker. He says he does not see developments in the global oil markets as adversarial between the United States and Saudi Arabia. If anything, he says, two growing economies – India and China – will eventually provide such an enormous demand for oil that Saudi Arabia can pivot away from its 20th century alliance with the US and instead look eastward. Plus, he says, Canada and the United States are becoming self-sufficient by developing their own fuel reserves. “These developments are beneficial to all,” says Yahiayan.

Other oil industry experts see the sudden escalation of the global oil supply to symbolize different intentions. That is, Saudi Arabia is challenging American oil companies by dumping cheap crude into the market. Regarding the most recent flood of Saudi crude onto the world stage, an annoyed Obama administration spokesman replied that the United States is “monitoring” the global oil supply and refused to comment upon his country’s Strategic Petroleum Reserve. The fact that the United States has even mentioned the SPR – giving it a terse “no comment” – suggests that it could answer Saudi’s challenge to American oil producers by releasing some crude of its own. 

If the United States does release SPR crude, the price of oil drops even further. The Russians aren’t the only regime that will suffer. Saudi Arabia itself can only balance its annual budget if a barrel of crude remains above the $65 dollar range, say experts.

So what about a Western pivot toward Iran? With its Shia majority, highly educated population, and strong oil reserves of its own, it serves as the major counter-balance to Saudi Arabia.