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Saudi Arabian flag with stock graph and an oil pump jack miniature model are seen in this illustration.
Saudis face reality on oil prices
Since November 2022, Saudi Arabia has led the grouping of OPEC members plus Russia in maintaining oil supply cuts to try to keep prices as close as possible to an unofficial target of $100 per barrel for Brent crude. Not coincidentally, the IMF estimates Saudi Arabia need $100 barrels to balance its budget as Crown Prince Mohammed bin Salman funds hugely expensive development projects as part of his Vision 2030 economic reform plan. Saudi Arabia is currently producing 8.9 million barrels a day, its lowest level in more than a decade.
The lower price will be good news for incumbent politicians facing public anger over broader inflation. That’s also true for Democratic presidential nominee Kamala Harris, whom Donald Trump has blamed for higher prices for US consumers. The Saudi decision will keep gasoline prices in check through the US election.
The new BRICS expansion and the Global South agenda
Ian Bremmer's Quick Take: Hi, everybody. And a happy end of summer back to school. Labor Day is coming up in a week and I am going to be back and at it in New York and around the world. But for now, a Quick Take and want to talk a little bit about the BRICS.
You saw the summit last week in South Africa, the headlines going into the summit, at least from the United States and its allies, was all about how Putin wasn't going to be allowed to attend. He had to attend virtually. One of the members of the BRICS, they can only send their foreign minister. Doesn't that show that, you know, the International Criminal Court means something, even though the Americans aren't actually a signatory to it? But that wasn't the real story.
The real story is that after a significant amount of Chinese diplomatic effort to expand the BRICS and make it more meaningful, which other members were skeptical about, there was significant success and an announcement that there will be six new members invited to join at the beginning of 2024. That's a very meaningful expansion. Egypt, Ethiopia, Argentina, UAE, Iran and Saudi Arabia. Presuming this all goes ahead, the BRICS will be the most important grouping of the so-called Global South. And I use that term advisedly because it's not quite clear that China is really a member of the Global South. It's much more important economically as a creditor of the Global South and increasingly wanting to have great influence over it, which a lot of members of the Global South want to resist. I'll get into that in a minute. But still, if you compare to what's been going on among the developing members of the G-20 to try to set a common agenda that more aligns with their interests as opposed to those of the United States and its allies in the G-7 who have become increasingly tight-knit post-Trump and post the Russian invasion of Ukraine.
I would say the BRICS are now supplanting that process as the most important piece of international architecture to watch, engage with, and to drive an agenda that matters to the countries of the Global South. And I think that the agenda-setting will be important on climate, it will be important on finance and the global economy. Maybe a bit on Russia, Ukraine, and also in efforts to resist weaponization of the US dollar. In other words, these are a whole bunch of countries that don't really like the fact that the Americans have leveraged a dominant position in the international financial system and as global reserve currency to have more influence over their own economic outcomes. I don't think this really means dollarization or the replacement with a BRICS currency any time soon. The role of the US dollar in global reserve currencies held by central banks around the world has been roughly the same for the last 20 years, and that, I suspect, will be true in another 10, another 15, 20 years as well. But nonetheless, in terms of a willingness of a whole bunch of countries to say we are not happy with the present global agenda as being set in their interests by the United States and allies, the BRICS will be an alternative, that is important, that will matter more economically over time and on some issues will be cohesive. So in that regard, I think it is important and I think we should spend more time following it and covering it.
As you know, we do other major sub-global confabs out there. A few points as rejoinders to that though, first of all, Argentina is not actually going to join. The present Argentine government very happy to. That is a leftist government that is much more aligned with China in particular. Their economy is falling apart. It is almost certain that after elections we will have a center-right or perhaps a far right libertarian government, either Bullrich or Milei in charge of Argentina. Both have said that they would not join the BRICS. So let's take Argentina out of the equation.
The countries that are left, it's interesting. It's all kind of one very broad region. We're talking about the Middle East and kind of northeast Africa. So again, UAE, Saudi Arabia and Iran, Egypt, and Ethiopia. Let's look at what that means. In the case of the Middle East, this is the region of the world that is becoming much less aligned with the United States, much more focused on the fact that they have to be self-sufficient, in part because the Americans aren't as interested, in part because the Americans are core competitors for energy, fossil fuel, energy development and export, then the Saudis, the Emiratis, and the Iranians.
So some of it is the US paying less attention, some of it is US driving a climate agenda to a greater degree than they were before. Some of it is the Americans are not a part of OPEC and competing with OPEC. And so for all of these reasons, what you see is the countries from the Middle East wanting to go more their own way, wanting to balance and hedge and be a part of everything. So keep their security relations with the US if they're Saudi Arabia and the UAE, but also work more closely with the Chinese and with everyone else that has significant demand for that energy. Hence the Saudis and the Iranians having a diplomatic engagement that the Chinese, that breakthrough sponsored by China, hence the Saudis inviting everyone, the Americans and the Chinese and the Ukrainians, everyone but Russia to be a part of what has been so far the most significant diplomatic effort around the Russian-Ukraine war and the fact that the Saudis, the Emirates and the Iranians are all now joining the BRICS is a significant additional movement. I would argue the Middle East is becoming more geopolitically stable, but also less aligned with the United States, more playing a balancing role with everyone. In the case of Ethiopia, that is a very significant, very populous country in Africa that is overwhelmingly aligned economically with China. That's where the money is. The United States doesn't play much of a role.
I think the next round of BRICS expansion looking forward is probably more likely to have the most interest from other sub-Saharan African countries. How many actually join is an open question, but that's certainly the easiest grouping that you can see wanting to be a part of the BRICS for all the reasons we just talked about. And then finally, I would say, let's also recognize what the BRICS is not. The BRICS is not a China-led competitor to the G-7, and that is because most of the countries that are in the BRICS, not all, but most do not want it to be. They don't want it to be led by China. Think about India in that regard in particular. And they don't want it to be a competitor to the G-7 where they have to join one and not the other. They want to have good economic relations with both. The economic order is a multipolar order. It is not a Cold War environment, and the security order is driven primarily by the United States. And you have to put BRICS expansion into that broader global framework. So the BRICS will matter more economically. They will facilitate far more Middle Eastern hedging. They will also facilitate greater agenda-setting in the global economy, broadly defined by the Global South. But that is not suddenly a decoupling of the world into G-7 versus BRICS. That's certainly not what we're going to see. So very important, a meaningful diplomatic win for the Chinese, not aligned with what the United States is trying to accomplish with the G-7 and with NATO broadly speaking, but not directly confrontational either. It's messy, it's nuanced. It doesn't easily lend itself to a five-second headline, but a ten-minute Quick Take. What the hell?
So anyway, that's it for me. Hope everyone's doing well. Enjoy this last days of summer and I'll talk to you all real soon.
- Will anything come out of the BRICS summit? ›
- Viewpoint: BRICS countries seek to expand global influence ›
- What’s come out of the BRICS summit? ›
- The Global South is angry and mistrustful - Ian Bremmer - GZERO Media ›
- AI is an opportunity to build trust with the Global South: UN's Amandeep Singh Gill - GZERO Media ›
A Saudi Aramco sign is pictured at an oil facility in Abqaiq, Saudi Arabia.
The Saudis’ big oil cut begins. How long will it last?
The Saudis’ controversial plan to slash oil production by 1 million barrels per day officially kicked off on July 1. The kingdom hopes that these voluntary cuts will help raise oil prices, which have remained sluggish for the better part of 2023. (The OPEC+ cartel – which include resource-rich countries in the Middle East, Latin America, and Africa, plus Russia – surprised observers when they announced some output cuts back in the spring that briefly drove up prices.)
Riyadh, for its part, has so far said that this reduction will last for the month of July but emphasized that it remains open to an extension. This comes as the global benchmark for crude oil has dropped around 13% in value so far this year, down from sky-high prices seen last year when Russia’s war in Ukraine sent commodity prices soaring.
While the Saudis hope that increasing demand from big buyers like India and China will help keep oil prices steady in the next few months – which Riyadh is banking on to help it reach its ambitious economic goals – many economists say that a number of factors, including ongoing interest rate hikes and China’s slower-than-expected economic bounceback, will continue to sap demand throughout 2023. Indeed, recession fears in wealthy countries don’t help either.
But could this plan backfire? If oil prices do increase too much, Riyadh risks irking Beijing, its number one buyer of crude oil. What’s more, higher oil prices could further aggravate global inflation, causing the US Fed and European Central Bank to again raise interest rates that might in turn … slow economic growth and reduce demand for oil.
The next quarter will be crucial, and the Saudis must carefully play their hand.
Saudi Arabia's Minister of Energy Prince Abdulaziz bin Salman Al-Saud arrives for an OPEC meeting in Vienna.
Global oil prices and a “Saudi lollipop”
In a dramatic decision, Saudi Arabia announced Sunday that it will take a unilateral step to slash its oil output by 1 million barrels per day in order to boost global oil prices.
Other OPEC+ states – which include resource-rich countries in the Middle East, Latin America, and Africa, plus Russia – committed to extending earlier cuts announced in April through the end of 2024, though they didn’t go even deeper like the Saudis.
Oil prices have hovered between $70-76 in recent months, well below the $80.90 per barrel the International Monetary Fund estimates that Riyadh needs to meet its ambitious economic goals and diversify its economy away from dirty fossil fuels. Still, oil prices have remained sluggish despite efforts by the Saudis in particular to tighten supplies over the past year.
Saudi Energy Minister Prince Abdulaziz bin Salman, who reportedly made the call, said the cut would be for the month of July but could be extended, describing the measure as a “Saudi lollipop” for the oil-producing cartel. (The subtext: What’s good for us is good for you!)
The US and EU, for their part, have accused the Saudis of manipulating oil prices and causing global economic havoc since Russia’s invasion of Ukraine in Feb. 2022. Surely, this will only further infuriate the Biden administration, which wants to keep gas prices down from record highs seen last year as the 2024 presidential race gets underway.
The Saudis are sending a clear message that they are willing to set a floor price for their most valuable export. And while they won’t care much about angering the Americans, they will care about the Chinese response, considering that Beijing is the kingdom’s largest market.
Iranian oil minister Gholamhossein Nozari talks to journalists
What’s OPEC’s game plan?
Saudi Energy Minister Prince Abdulaziz bin Salman reportedly made the call, but it's unclear why these specific outlets were targeted or whether it was just a power play since other reporters have not been excluded. At the summit, the group will decide how much oil to produce in the second half of the year.
The big question is whether OPEC+ will deepen oil cuts to try and offset lowish oil prices – which currently come in at around $70 a barrel, down from $87 in April.
Many analysts believe it’s unlikely the group will change its policy because it might ruffle feathers in Beijing, the kingdom's top oil customer. Interestingly, it would also be very unpopular with the West, which says that boosting prices would give Moscow more income to fund its war machine and could also undermine global efforts to address inflation.
But the same group of oil producers surprised many by slashing output back in April to boost prices. What’s more, Riyadh last week told some investors to “watch out,” a vague warning, some say, that more cuts could be coming in the next six months.
OPEC+ vs. the US
Oil prices soared Monday — and continued rising Tuesday — after a group of OPEC+ members (unexpectedly) announced that they'd slash production voluntarily by more than 1 million barrels per day. It’s the crude cartel’s response to expected sluggish demand for crude triggered by the recent financial turmoil in the US and Europe as well as China’s weak economic recovery.
The lion’s share of the slash — which follows a bigger cut of 2 million bpd in October — will come from Saudi Arabia, which pledged a 500,000-bpd reduction until the end of the year, matching an earlier promise by Russia.
Why are the Saudis doing this? Officially, Riyadh says it aims to balance markets, but it clearly wants to stop the price of crude from plunging further as the global economic slowdown hurts oil demand, says Eurasia Group expert Raad Alkadiri.
Saudi Crown Prince Mohammed bin Salman has ambitious spending plans, and he wants to get ahead of the curve before prices drop too much. (Indeed, the price of benchmark Brent oil hit just $73 per barrel last month compared to over $120 in the summer of 2022.)
But there's also a US angle. The Saudis resent the Americans for dragging their feet on replenishing the US Strategic Petroleum Reserve, which the Biden administration has tapped into several times since late 2021 to bring down domestic gasoline prices from a whopping $5 a gallon to today's average $3.50.
Russia’s President Vladimir Putin, for his part, has been itching for a chance to get back at the US for leading the charge to enforce a $60 per barrel price cap on Russian oil among G-7 and EU nations. The cap is finally starting to hurt Russia's economy, although perhaps not as much as the West expected.
Japan's recent move to carve out an exemption to buy some Russian crude above the $60 limit is the first semblance of a crack in Western unity against Moscow. And the more expensive oil gets, the harder it’ll become to enforce the price cap — not to mention that US Republicans will jump at the chance to blame high gas prices on President Joe Biden.
Are the OPEC+ cuts a good or bad thing? As usual, that depends.
If you're in the US, you're probably thinking: Yikes, that’s pretty awful now that gas prices have stabilized. Even though they likely won’t reach last year’s levels, high energy costs are the last thing that Western central banks need as they fight to bring down inflation, which is extremely sensitive to wild swings in energy prices.
Yet, if you're MBS or Putin, you must keep prices above a certain level to keep your oil-dependent economy humming. We all know that the Russians will do whatever they can to push back against the $60 price cap, but Alkadiri says that "the Saudis are now showing that they are determined to keep prices up too — Washington be damned."
Models of oil barrels and a pump jack are seen in front of displayed EU and Russia flags colors.
What We’re Watching: Russian oil price cap woes, Iran’s morality police 'U-turn'
Capping the price of Russian oil is harder than the West thought
A long-awaited G-7 $60 per barrel price cap on Russian oil took effect Monday. Markets responded with skepticism: In early trading, the price for Brent crude, the global benchmark, went up slightly to $86 per barrel. Why? Three days after the sanctions scheme was announced, its weaknesses have started to show. First, Russia has outright refused to accept the cap and is mulling a response — perhaps refusing to sell any crude to countries that enforce the price ceiling. Second, Ukraine thinks the cap is too weak to seriously damage Russia's economy. Third, OPEC+, which includes Russia, says it's business as usual and that it's not changing its output levels. There are fundamental flaws to the measure. After all, it’s not really a price cap so much as a limitation on insurance and shipping firms, and it lets Russia continue to sell oil, just at a lower price. Also, most of Ukraine’s friends wanted it to be lower than $60, and big Asian buyers haven’t signed on. Meanwhile, two of Russia’s biggest customers, China and India, will continue to stock up on cheap Russian crude. So far, the price cap, imagined by Washington and executed by the G-7, seems somewhere between a bureaucratic irritant and a slap on the wrist for Moscow.
Is Iran really scrapping its morality police?
Appearing to respond to mass protests, an Iranian prosecutor — notably not a regime spokesman — said on Saturday that Iran is dismantling the country's notorious morality police. Demonstrations have rocked the country ever since a young woman detained by morality police for improperly wearing a headscarf died in custody in September. Does the announcement mean the police unit will really be abolished, or that the protesters can go home? Not so fast. Hardliners will certainly fight to retain the morality police, and while the strict dress codes will supposedly be reviewed, they are still very much on the books. It's unlikely that a theocracy like Iran is going to let women dress as they please. Still, commenting on dismantling the much-hated unit is a clear sign the regime knows it can't just dismiss the biggest uprising since the 1979 Islamic Revolution. What’s more, the chatter has emboldened the demonstrators to apply even more pressure — beginning with a fresh three-day strike on Monday. Will the mullahs respond by making more concessions or by cracking down further? Momentum against the regime is certainly building — so much so that Iranians celebrated their soccer team's World Cup loss to the US last week. For more on the soccer backlash, check out Ian Bremmer's interview with Iranian activist and journalist Masih Alinejad here.
*Correction: This Watching has been updated since our morning Signal newsletter.
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Saudi Arabia’s Crown Prince Mohammed bin Salman and US President Joe Biden during a summit in Jeddah.
Laws, votes & guns: America’s options to respond to Saudi oil cuts
Following the largest cut in oil production — 2 million barrels per day — since the beginning of the pandemic by the Saudi-led OPEC+ oil cartel (which includes Russia), the Biden administration finds itself on a war footing about how to deal with Riyadh.
Not heeding American pleas to increase output — and instead triggering an increase in oil prices just before the midterm elections — is being seen in Washington as an attempt by Saudi Crown Prince Mohammed bin Salman to influence US politics to the advantage of Republicans. It’s also being kicked up as a clear pro-Putin move by some members of Congress, who have started to push legislation that would enable the White House to deal forcefully with the Saudis.
Remember, President Joe Biden burnt a lot of political capital in the summer with his tour of Saudi Arabia — fist-bumping-for-oil-pumping was the intention, kind of. Clearly, by the president’s own admission, those measures have fallen short.
With gas prices spiking, Republicans blaming the White House and Democrats pushing for action, how will the administration respond? Besides a host of maneuvers (limiting energy exports, tapping into the already almost-tapped out Strategic Petroleum Reserve, easing sanctions on oil-producing bad actors), the Biden administration has at least three choices provided by Congress to move against the Saudis and/or OPEC+.
First, the NOPEC vs OPEC option: The NOPEC (No Oil Producing and Exporting Cartels Bill) bill would empower the US Justice Department to sue oil cartels for antitrust violations in oil and gas products. The premise would be prosecuting price-fixing under the Sherman Act, and consequences could include seizing foreign-owned property to pay for damages.
Until recently, the White House had been careful not to take up this option, but has now hinted that it’s now working on it with Congress — where the legislation has enjoyed bipartisan support for years.
Next, the OPEC Accountability Act [aka the ‘See You In Court’ Act]: Reintroduced last week on the same day as the OPEC+ announcement, this bill would require the US president to initiate consultations with OPEC countries; if these do not succeed in “ending collusion on oil production and market manipulation,” the legislation instructs the US Trade Representative to initiate dispute proceedings at the World Trade Organization, which would take the US versus OPEC+ war into the bureaucratic but hectic machine of international law.
Then, the [aptly named] Strained Partnership Act: Also tabled last week by Democrats who term Saudi actions as a hostile move that hurts American consumers, the bill focuses on the US pulling out its approximately 3,000 troops in Saudi Arabia and 2,000 in the UAE, including Patriot missile batteries and the THAAD air defense system based there, within 90 days.
Unclear about where in the Middle East to relocate these assets, the proposed legislation isn't novel either: its Democrat authors say Republicans used similar legislation under former President Donald Trump to stare the Saudis down in 2020 — but that was to decrease production, not increase it. In any case, the bill acknowledges the difficulty of moving troops around “to the extent practicable.” Also, Congress is out of session until the election.
However, Washington’s defense ties with Riyadh have become very unpopular with Americans. A new Eurasia Group Foundation survey says that more than two-thirds of both Democratic and Republican and Democratic voters oppose continued US arms sales to Saudi Arabia.
While the US is the world’s largest arms exporter, Saudi Arabia is the world’s second-largest importer. The kingdom is also the No. 1 importer of American weapons, accounting for 23% of all US exports from 2017-2021. But America’s biggest arms customer is also its most controversial buyer.
The tilt within Biden's own party is clearly against selling weapons to the Saudis: nearly three-quarters of Democrats opposed arms sales to Riyadh, compared to 62% of Republicans, according to the survey.
Why? First, Saudi Arabia’s track record of domestic oppression and human rights abuses. Second, the kingdom’s use of US-provided weapons in the war in Yemen.
Collusion on oil prices wasn’t one of the top reasons — but it could be now. The study also notes that while Biden announced early in his administration an intent to end the sale of offensive weapons used in Saudi Arabia’s war in Yemen, he’s reportedly still reevaluating this decision.
In the desert, reality bites the dust. The US has a host of measures it can take to retaliate if it wants to, including limiting arms. But none of these are likely to alter Saudi decision-making or deter Riyadh from taking similar decisions on oil in the future, even if this means being at odds with Washington, says Raad Alkadiri, Eurasia Group’s managing director for Energy, Climate & Resources.
“This is the latest sign of a strategic schism in the alliance that has been building for some years,” he explains. “Saudi and US interests are diverging, with Riyadh increasingly questioning the credibility of the US security guarantee and putting its own financial and economic priorities ahead of Washington’s desire for lower oil prices.”
While the Saudi oil-price floor no longer overlaps with the US oil-price ceiling, at least for the moment, and with both sides focused on immediate political and economic priorities, Alkadiri says that the room for compromise has shrunk.
Clearly, Saudi Arabia under MBS is acting more independently than it has done in the past, and much like the UAE, is looking east to secure its economic future.
“The erosion of the alliance with Washington is the result, and it is giving full voice to anti-Saudi sentiment that has long percolated just under the surface in Congress, and in this White House as well,” says Alkadiri.
Is this going to be the pattern for the future? For Alkadiri, “we are witnessing a particularly fraught moment in US-Saudi ties, largely because Riyadh’s oil move risks damaging the Biden administration’s — and the Democratic Party’s — political interests at home. It has led to a lot of mud-slinging at the Saudi leadership.”
“Anger in Washington,” he adds, “will probably die down a bit over time, but the strategic differences that will shape the relationship moving forward have been exposed in the full light of day.”
What about the Saudi take? American officials, the Saudis say, "tried to position it as 'us versus Russia,'" pushing them into a corner where they needed to make a call. That didn’t work, and the Saudis pushed back with their own advice for the US: pump more of your own oil, and fix your refineries.
Riyadh also raised reservations about the lack of details from the US about the price cap plans on Russian oil. In the end, it came down to priorities, with the Saudis dropping diplomatic niceties.
"We are concerned first and foremost with the interests of the Kingdom of Saudi Arabia and then the interests of the countries that trusted us and are members of OPEC and the OPEC+ alliance," the Saudi energy minister said on the day of the announcement.
Bottom of the oil barrel: The tense dynamics of the Washington-Riyadh dyad, compounded by the ascent of MBS – who is now PM, a privilege that his lawyers argue provides him immunity from being tried in the US for the murder of journalist Jamal Khashoggi – suggest bilateral ties will be determined much more by “immediate imperative rather than strategic coordination,” says Alkadiri. We have moved beyond the US-Saudi relationship of old into a repositioning that could be “more competitive and confrontational.”This article comes to you from the Signal newsletter team of GZERO Media. Sign up today.