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CNN's October 7, 2022 Why Saudi Arabia defied the US over OPEC oil supply cut includes the following quotes:

“What Saudi Arabia did to help Putin continue to wage his despicable, vicious war against Ukraine will long be remembered by Americans,” tweeted Senate Majority Leader Chuck Schumer, a Democrat, on Friday.

The Biden administration was swift in its reaction. White House press secretary Karine Jean-Pierre put out a statement on Wednesday saying that it “is clear OPEC+ is aligning with Russia.” On Thursday, Secretary of State Antony Blinken said the US is “reviewing a number of responses” to Saudi Arabia’s move, adding that the White House is “consulting closely with Congress.” Some Saudis are describing the reaction as “hysterical.”

On the other side of the argument, the article includes:

For its budget to break even, global oil prices must be at around $79 a barrel, according to the International Monetary Fund. Last month, prices dropped to $85 per barrel from a high of $139 just seven months ago. That was a warning sign for Saudi Arabia and other oil exporters, who depend on oil for a majority of their revenue.

“But the Saudis do not want to just balance the books, they want to ensure a steady stream of surpluses,” said Robert Mogielnicki, a senior scholar at the Arab Gulf States Institute in Washington, adding that the kingdom “would like to see prices moving closer to the high $90s.”

Saudi Arabia has the lowest oil extraction cost in the world, at around $3 per barrel. That means the vast majority of the revenue earned from each barrel goes into its coffers. And those funds are needed to finance everything from futuristic trillion-dollar cities in the desert to a sizeable government wage bill, despite the introduction of new taxes in recent years and attempts to diversify the economy.

“The high price [needed to balance the budget] is because of the large spending on government services, infrastructure investment, public sector, etc,” said Omar Al-Ubaydli, director of research at the Bahrain-based Derasat think tank, adding that “conventional tax instruments are largely absent, especially personal income tax.”

“It is trying to have a diverse and stable revenue source for the government because unstable government finances are highly disruptive to the economy,” added Al-Ubaydli.

and

“The response coming from policy circles in Washington is exaggerated,” said Mohammed Alyahya, senior fellow at the Hudson Institute in Washington DC. “Saudi Arabia’s is primarily interested in ensuring that OPEC+ remains apolitical and focused on technical matters."

All of that at least feels convincing to me that Saudi Arabia is indeed likely to be simply exercising sound fiscal policy and not "siding with Russia".

Yet Schumer and the White House are "slamming" it and preparing to take actions to punish it. So I'd like to ask:

Question: Are there any objective arguments to support assertions that Saudi Arabia is "siding with Russia" and not simply just exercising sound fiscal policy?

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    @ItalianPhilosophers4Monica It's a power play. Saudi is making it known they're treating the US as a temporary ally, rather than as their liege.
    – Therac
    Oct 9, 2022 at 14:03
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    What do you mean by "sound fiscal policy"? Do you mean maximizing economic growth, or anything that's not terrible economic policy, or do you have some other definition? And short-term or long-term? This question seems to invite predictions for the future of the Saudi economy, which are off-topic.
    – Stuart F
    Oct 12, 2022 at 10:04
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    @StuartF No this does not "seem to invite predictions for the future of the Saudi economy" in any way. Individual governments and international economic bodies take actions all the time to either reduce or increase the possibility that something happens in the future. For example governments may change their interest rate to avoid inflation and/or recession in the future but a Stack Exchange question about those interest rate changes is not an "invitation to post an answer predicting the future and therefore off-topic." Governments regularly act in anticipation of the future. We all do.
    – uhoh
    Oct 12, 2022 at 10:29
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    @StuartF as for "sound fiscal policy" please reread the question and its block quotes which outline arguments to that effect. I'm not going to pre-constrain answers to one specific, narrow definition (or ask multiple questions with different definitions); the question simply asks about "siding with Russia" vs "taking care of themselves."
    – uhoh
    Oct 12, 2022 at 10:40
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    @StuartF - This question seems to invite predictions for the future of the Saudi economy, which are off-topic. "Predictions of future events" are not necessarily off-topic, It depends on the question. See the forecasting tag: Questions about forecasting, which is the estimation of future trends or the outcome of future events based on data from the present and the past. In any case, this question is not about the Saudi economy, but whether Saudi Arabia is "siding with Russia."
    – Rick Smith
    Oct 12, 2022 at 11:44

2 Answers 2

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+100

While the "oil price cap" for Russia is applied just as a sanction, and (from the view point of Ukraine) seems fair this way, other oil producers may have concerns that upon success this cap may also be applied to them by EU/USA, threatening their profits. This can be seen as buyers coordinating the price in the cartel.

Hence they are siding with Russia to push back against this specific sanction, where they suddenly found themselves in the same boat, acting as leaders of the OPEC Plus energy cartel. "Denazifying Ukraine" or supporting Ramzan Kadyrov is likely the last thing Saudi Arabia cares about.

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You could look the 2020 price war they had with Russia: not exactly great alignment.

But you can look at MSB's snub of Biden earlier in the war, when he supposedly did not pick up the phone makes one think there is a little bit of ill-intent from the Saudi side, even if they need the $ windfall. MBS and Biden have history.

Another motivation of Saudi is usually to diversify arms purchases. Hard to see acquiring Russian arms as a primary motivation at this time however. And the budding bromance between Russia and Iran is unlikely to make Saudi look kindly on Russia.

In any case, Saudi has real budgetary issues (2021's first balanced budget since 2013), is trying to diversify off oil and needs oil revenues to finance the transition, before renewables and de-carbonization bites too deep. It needs $70-80-ish oil to balance a budget and MBS needs good economics to wean himself off religious conservative support so...

Oil's trading at $95/b today, that's not a huge margin off Saudi's balanced-budget target and presumably any G7 price cap would want to knock it down a bit from there, otherwise G7 wouldn't bother.

So it's probably a mix of motivations - more pro-Saudi, anti-Biden, rather than pro-Russia, resulting in decisions taken without much transparency, so we won't know for sure and, well, people here can just recite off Schumer and Mogielnicki's arguments back to you.

They've traditionally both defended oil prices when it is safe to do and opened up the spigots when the US had a good reason to ask them to. Dragging their foot in this case is a bit unusual, but is still unlikely to be very much intended to support Russia.

Finally, if the Biden administration really wanted to put pressure on Saudi to walk back its output cuts, it can't publicly do so "because Saudi is pursuing its economic interests", it has to claim "because it's helping Russia".

DW has a long article about it and their only real conclusion is that US-Saudi relations aren't going to improve from this.

p.s. Schumer and Dems are not averse to calling Reps soft on Saudi - Khassoghi's murder makes that easy - so there are also domestic political reasons for US-side posturing.

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  • "...is still unlikely to be very much in support of Russia..." But it supports Russia. Higher oil prices do also benefit Russia (or is the price cap applied everywhere in the world). Oct 13, 2022 at 18:07

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