Saudi Arabia Willing to Raise Oil Output to Help Secure Israel Deal
The Saudi government’s signal that it’s willing to cooperate with Washington over oil production is a notable shift, fuelled by negotiations around a defence pact.
Saudi Arabia has told the White House it would be willing to boost oil production early next year if crude prices are high – a move aimed at winning goodwill in Congress for a deal in which the kingdom would recognise Israel and in return get a defence pact with Washington, Saudi and US officials said.
That understanding is part of an effort to seal a three-way agreement that would also likely include US nuclear assistance and represents a notable shift by Riyadh, which a year ago rebuffed a Biden administration request to help lower oil prices and fight inflation, severely straining relations.
Still, Saudi negotiators emphasised market conditions would guide any action on production and officials familiar with the talks said the discussions didn’t represent a long-term agreement to cut prices.
Spokespeople for the White House National Security Council and the Saudi government didn’t respond to requests for comment.
Talks on a deal have centred on Saudi recognition of Israel – a move that could revamp the geopolitics of the Middle East – in return for US weapons sales, security guarantees and help building a civilian nuclear program. An agreement would be a diplomatic coup for President Joe Biden as he faces a tough re-election battle.
Saudi Arabia hasn’t recognised Israel since its founding in 1948, and a deal establishing diplomatic relations would expand Israel’s ties to the Arab world, potentially constrain Iran’s military ambitions and curb China’s efforts to supplant American influence in the region.
Two top White House officials, Brett McGurk and Amos Hochstein, flew late last month to Saudi Arabia, where they emphasised that soaring petroleum prices would make it harder to win support in Washington, the officials said.
The White House may need congressional support for a deal. Negotiators are now discussing a new defence pact with the kingdom that could require Senate approval as well as US support for Saudi efforts to create a civilian nuclear program, and billions of dollars in weapons sales.
The trip by McGurk and Hochstein came amid a climb in oil prices, with the global benchmark, Brent crude, rising 25pc this quarter and trading as high as $US95 ($149) a barrel. It has pulled back in recent days, trading above $US84 a barrel Friday.
The Saudis have been pressing for higher prices as they pour tens of billions of dollars into megaprojects aimed at transforming the kingdom’s economy. Public acknowledgment that the Saudis could act to cool the oil market next year might have the effect of capping oil prices under $US100 a barrel, a historically high level that has in the past fuelled inflation and led to calls in Washington for action.
As the world’s largest oil exporter, Saudi Arabia has a unique capacity to influence crude prices, with the ability to restrict the world’s oil supply or flood it. The kingdom has used that power to calm markets during periods of global turmoil, but under Crown Prince Mohammed bin Salman, the nation’s oil policy has become known as “Saudi First,” as the kingdom looks to fund its economic diversification.
Any move by the Saudis to raise output would be complicated by its energy-production alliance with Russia, itself one of the world’s largest oil producers. The kingdom has moved in lock-step with Moscow, which has tried to keep oil prices high by restricting production, keeping oil money flowing into its coffers to fund its war in Ukraine.
The Saudis and Russians lead an oil-producing group known as OPEC+, which is set to meet at the end of November to decide output levels. The 23-member group cut oil production by two million barrels a day a year ago in a move that infuriated the Biden administration, and Saudi Arabia and Russia have cut even more on their own since then – actions that are due to expire by the end of 2023.
The Biden administration hopes to broker a Saudi-Israel agreement in the next six months. The three sides have broadly agreed on the contours of the deal and are starting to hash out thorny details.
McGurk, the White House’s top Middle East official, and Hochstein, Biden’s senior adviser for energy and infrastructure, have repeatedly pressed Saudi Arabia to make moves to repair its image in Washington, where Congress could play a key role in making or breaking a diplomatic deal with Israel.
Lawmakers from both parties have expressed reservations about offering such support to Saudi Arabia or giving a diplomatic boost to the 38-year-old crown prince, who, while moving to revamp the economy and ease conservative social mores, has also sought to silence dissenters.
US intelligence officials said Mohammed sent a special team to Istanbul, where its members killed Jamal Khashoggi, a dissident Saudi journalist, US resident and Washington Post columnist who wrote pieces critical of the kingdom’s young ruler.
Mohammed characterised the Saudi hit team as a rogue unit and has said that he has moved to prevent any similar killings from happening under his watch.
Biden himself vowed, when he took office, to treat the kingdom as a pariah because of its record on human rights. But Biden began to shift course last year when he flew to the kingdom and famously gave Mohammed a fist bump that signalled a new cooperative relationship between their two countries.
Since Russia’s invasion of Ukraine sent energy prices soaring, the Biden administration has focused more attention on oil-rich Middle East petro states whose problems it tried to de-emphasise early in the president’s term. There has been progress on several fronts.
Since Biden took office, Saudi Arabia has moved to extricate itself from a long-running war in Yemen. Saudi Arabia halted air strikes and agreed to a ceasefire that has brought significant calm to Yemen for the past year. The US and United Nations have been working to broker a long-term truce and to accelerate peace talks meant to bring the war to a close.
The Biden administration has been encouraged by Saudi Arabia’s recent outreach to Israel, including the kingdom’s rare decisions to allow two Israeli ministers to visit the Gulf nation.
The talks over oil come during a period when the world’s oil supply is beginning to fall short of demand. OPEC+ forecasters predict a global deficit of 3.3 million barrels a day in the fourth quarter, and many oil analysts now expect prices Brent to eventually top $US100 a barrel.
The International Monetary Fund estimated earlier this year that Riyadh’s break-even oil price to balance its budget is about $US81 a barrel. If Saudi Arabia keeps struggling to attract foreign investment to projects such as Neom, the break-even price could rise closer to $US100, analysts say.
“It could prove challenging to convince Saudi Arabia to front load any significant energy assistance before a comprehensive deal is essentially done,” said Helima Croft, the chief commodity strategist at Canadian broker RBC.
The Wall Street Journal
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