Scheduled for July 13 to 16, the visit to Saudi Arabia by United States President Joe Biden is causing a lot of talk in the energy world. Mr. Biden must surely be treading on his pride in going ahead with this visit to Saudi leader Mohammad bin Salman, who was, in all likelihood, linked to the murder of Saudi journalist Jamal Khashoggi in Turkey. However, on the eve of the mid-term elections, the American president needs to control fuel prices, an old political obsession in the United States, and to curb inflation which is eating away at the purchasing power of voters.
Although his country has become a major oil exporter, Joe Biden cannot rely much on American industry to help his cause. It hesitates to relaunch its production while the recession is on everyone’s lips. Refining capacities are also already stretched to the maximum, with the bankruptcy of several refineries due to the pandemic.
In this context, and even more in a situation of scarcity of supply and explosion of prices, Saudi Arabia retains, as in the past, all of its strategic importance.
The oil ties between this country and the United States are well known. It was the Americans who discovered the oil on Saudi soil, notably the Ghawar megafield in the east of the country in the late 1940s. They were also the ones who founded the Aramco company, which extracts and the marketing of oil from this Persian Gulf country. This company then came under full Saudi control in 1980.
After the Second World War, aware of the increased importance of oil for the army and the economy, the American president Franklin Roosevelt would have sealed a few weeks before his death a gentleman agreement with Ibn Saud, the first ruler of the kingdom: this agreement is named by historians as the Quincy Pact, from the name of the American boat where the discussion took place in the Suez Canal in 1945.
A pact based on a very simple exchange of services: the United States ensures the protection of the regime in this volatile region, this Middle East composed of countries drawn by French and British colonization, in exchange for a reliable and stable supply of oil. This good understanding has since then been a pillar of the foreign policy of these two countries.
Why this role assigned to Saudi Arabia in terms of energy? For two reasons: this country has, by far, the largest oil reserves in the world and above all it has the ability, at low cost, to be able to bring large quantities of oil to market in a short period of time. The Energy Information Administration defines this flexibility as the ability, in less than a month, to bring large quantities of oil to market over an extended period of more than three months.
This operating flexibility makes the Saudi kingdom the most influential country, by far, in the global oil sector. Especially since this fossil energy, largely responsible for global warming, still retains a prominent place in the global energy mix despite the progress of wind and solar energy for a decade.
Arabia demonstrated this ability to react quickly, particularly in 1991, following the war in Iraq. Four million barrels a day were then taken off the market, and Arabia and Persian Gulf partners were able to intervene quickly to stabilize global supplies.
Since the invasion of Ukraine by Russia, such a capability has become very important. But there’s a catch: Since the United States has itself become an exporter of oil in the last decade, Saudi Arabia has moved closer to Russia, a major exporter, in supply management.
Historical ties with the United States retain their full weight, but Riyadh also has an eye on Moscow in its decision-making. However, Russia needs high prices to finance its war.
Saudi oil decision-makers must therefore maneuver between the interests of the Kremlin, those of the White House and those of other producers, who are only too happy to pocket the generous revenues they are currently drawing from this resource.
With this visit, the historic friendship between the United States and Saudi Arabia is undergoing an important test. Its outcome will affect the prices that inflation-stricken citizens and businesses will pay at the pumps.