Chinese President Xi Jinping told Persian Gulf Arab leaders on his visit to Riyadh that China would work to buy oil and gas in yuan, a move that would support Beijing's goal to establish its currency internationally and weaken the US dollar's grip on world trade.
Any move by Saudi Arabia to ditch the dollar in its oil trade would be a seismic political move, which Riyadh had previously threatened in the face of possible US legislation exposing OPEC members to antitrust lawsuits.
To shed light on the issue, we reached out to Mehmet Öğütçü, former Turkish diplomat, chairman of the London Energy Club, and CEO of Global Resources.
What is the message of their act as the biggest oil exporter and importer to the US?
This visit has marked a new era in which both Saudi Arabia and China have signaled that they would pursue self-interest rather than responding to the pressure from Washington DC. Relations are diversified but in large measure based on oil trade and investment.
Saudi Arabia received Xi Jinping with the pomp and circumstance normally reserved for the Kingdom’s most strategic ally, the United States. During his visit, Xi Jinping also met other leaders from across the Arab world. Dozens of trade, economic and military agreements – to the tune of tens of billions of dollars – were signed.
Persian Gulf countries appear to have ramped up their independent-minded policy[Persian] Gulf countries appear to have ramped up their independent-minded policy. While for decades they walked in lockstep with US foreign policy, they have lately been stepping out of line.
Xi’s red-carpet welcome is a far cry from Biden’s trip to Riyadh this summer. An unsmiling Crown Prince Mohammed bin Salman greeted Biden with a fist-bump then publicly embarrassed him during a televised roundtable meeting, announcing a limited increase in oil production that fell far short of US demands. Months later, Saudi Arabia doubled down by cutting oil production.
The OPEC+ grouping of oil exporters—comprising an OPEC bloc led by Saudi Arabia and a non-OPEC bloc led by Russia—agreed in October to cut production quotas and curb international oil supplies. This is likely to keep oil prices high, even as Western interest rates rise and global demand slows.
By striking a sharp contrast with Biden’s visit, Xi’s trip to Saudi Arabia carried an implicit message to the US. Despite Washington’s repeated pleas to its [Persian] Gulf allies to spurn China’s commercial carrot, the region’s relationship with Beijing continues to evolve, advancing not only in oil, gas and trade but also in security. The first message is that “this is a new Saudi Arabia. This is a new [Persian] Gulf. This is a new reality”.
Can such a move spread over to the exchanges of other sellers and consumers? How can this trend affect the US global hegemony in the future?
The price cap on Russian seaborne crude Europeans has not yet produced the results intended. It has diverted trade to other destinations, primarily to China and India at a premium price.
The Europeans have no shared view about how the Ukraine-Russia conflict is likely to end. No single EU member state is guiding Russia's policy; a ‘leaderless unity’ has emerged. This could provide the bloc with a form of dispersed strength – but a change in US leadership could expose the weakness of this situation. Policymakers are also uncertain how Russia’s war on Ukraine will affect their interaction with other parts of the world, including China and the global south. This could prevent Europeans from mounting a more effective global response.
Amid a cost-of-living crisis in Europe—largely fuelled by the war in Ukraine and sky-high energy costs—and to the consternation of political leaders in Washington, Brussels and London, Saudi Arabia, and other OPEC members argue that they are merely acting in their own economic interests by making a pre-emptive policy to put a floor under prices in a volatile market situation.
Persian Gulf would have to try to cut a path without its major security guarantor, the United StatesIncreasingly, [Persian] Gulf leaders began to speak publicly of a post-American Middle East [West Asia]. The [Persian] Gulf would have to try to cut a path without its major security guarantor, the United States. That attitude appeared to have precipitated a Trump-backed wave of normalization of relations with Israel, known as the Abraham Accords, despite the continued popularity of the Palestinian cause among the Arab masses. It also triggered a rapprochement between Saudi Arabia and Iran and a full restoration of relations between Abu Dhabi and Tehran.
[Persian] Gulf leaders made clear that a growing relationship with Russia would remain unscathed, impeding an international effort to isolate Moscow. At times, [Persian] Gulf leaders seemed to work with Putin over oil policy.
On China, the [Persian] Gulf has flouted many warnings from the US about growing partnerships with Beijing and Chinese companies. Last year, Emirati officials accused the US of “bullying” them into shuttering a Chinese facility on Emirati soil. When the US threatened to pull a landmark deal to sell F-35 fighter jets to the UAE over the oil-rich state’s 5G deal with Chinese tech giant Huawei, Abu Dhabi carried on with the agreement. The relationship with China is evolving militarily as well, to the chagrin of the US.
To what extent, has the US measures - I mean using the dollar as a weapon- pushed others even its own close allies like Saudi Arabia to take such retaliatory measures? Any other reasons that have forced US allies to do so?
Biden has been calling for assistance from [Persian] Gulf partners to help to reduce global energy prices, ease domestic price pressures and deny Russia burgeoning energy sector revenue. The latest OPEC+ move and the evident lack of cooperation between Saudi Arabia and the US, together with Saudi Arabia’s unwillingness to condemn Russia’s attack on Ukraine, have further strained relations between Saudi Arabia and the US.
US-Saudi bilateral relationship may become increasingly transactional, in an unstable global geopolitical environment, while opposition to Iranian influence will remain a common themeThe US government has responded to an oil production quota cut announced by the OPEC+ grouping of oil exporters by vowing to “re-evaluate” its relationship with Saudi Arabia. The US response has been carefully calibrated to avoid undermining key areas of bilateral interest—for instance, certain types of weaponry supplied to the Kingdom may be restricted but only temporarily. The bilateral relationship may become increasingly transactional, in an unstable global geopolitical environment, while opposition to Iranian influence will remain a common theme.
The Saudi riyal’s long-standing peg to the US dollar will remain in place but Saudi Arabia will explore alternatives, including a shift to a reference basket of currencies and a potential sale of oil in currencies other than the dollar.
Although the OPEC+ production cut will support oil prices to the advantage of Russian state finances during the Ukraine war, Saudi Arabia and other oil producers claim that they simply need to put a floor under oil prices. Rather than “siding with Russia” in the Ukraine war, OPEC members claim that they are acting apolitically, in order to ensure budget stability. Saudi Arabia’s Vision 2030 economic development plan requires hundreds of billions of dollars of investment, with the aim of diversifying away from oil production. Renewable energy, housing, healthcare, cultural and tourism projects as well as the building of Neom, a futuristic new city, are all part of the kingdom’s plans. High oil prices play a central role in funding the kingdom’s development ambitions, with strong rises in expenditure expected throughout 2022‑25.
Can we witness such other retaliatory measures by other US allies in other fields such as the military field?
After seven decades of hegemony in Asia, America now must accommodate an increasingly powerful China. Today, after a century and a half that encompassed Western imperial occupation, republican turmoil, the plunder of warlords, Japanese invasion, civil war, revolutionary upheaval, and, more recently, phenomenal economic growth, China has resumed its own sense of being a great power.
Therefore, Washington’s push for its allies and partners to make a white and black choice to side “either with us or the Chinese” can hardly work. Regional powers will have their own self-interests in the forefront and can shift as they see fit between different major powers.
Putin’s attack on Ukraine is forcing governments worldwide to digest the geopolitical consequences of war pursued by an energy superpower. The 27-nation European Union has responded by speeding up its disconnection from Russian gas, while the U.S. has barred Russian oil imports and is scouring the world for alternative supplies. Saudi Arabia is reveling in renewed strategic importance as crude prices that collapsed two years ago hit new highs.
Business leaders have declared acceleration of deglobalization and sounded the alarm about a new period of stagflationBusiness leaders have declared acceleration of deglobalization and sounded the alarm about a new period of stagflation. Academics have decried the return of conquest and hailed the renewal of transatlantic ties. And countries are rethinking almost every aspect of their foreign policies, including trade, defence spending, and military alliances.
These dramatic shifts have overshadowed another profound transformation in the global energy system. For the last two decades, the urgent need to reduce carbon emissions has gradually reshaped the global energy order.
International instability is more likely in East Asia than in Western Europe. Whether one looks at variables favoured by realists or liberals, East Asia appears more dangerous. The region is characterized by major shifts in the balance of power, skewed distributions of economic and political power within and between countries, political and cultural heterogeneity, growing but still relatively low levels of intraregional economic interdependence, anemic security institutionalization, and widespread territorial disputes that combine natural resource issues with postcolonial nationalism.
Geopolitics, energy, technology, food, and economy have never been so intermingled in world history as today. All indications point us towards more confrontation than cooperation unfortunately with energy topping the hot agenda items.
Interview by Zahra Mirzafarjouyan
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