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US should balance response to OPEC+ oil cuts with other needs 

Yet again, Iran lurks in background.

Biden’s Saudi reset takes a hit….

US President Joe Biden called the OPEC+ decision this week to cut production by 2 million barrels a day (bpd) a "disappointment,” and he’s right. Top administration officials warned Saudi leaders that a decision to cut production would be a "total disaster" and possibly a "hostile act," and Riyadh did it anyway, according to the scoop from CNN.

Biden once again is getting pummeled, including by many in his party, for his July meeting (and fist bump) with Saudi Crown Prince Mohammad bin Salman Al-Saud, commonly referred to by his initials MBS. The perception among critics is that Biden was played by MBS. The oil price increase has consequences for the US and its allies, as well as developing countries who will be hit even harder.   

 …but it could get worse 

Yes, oil was unquestionably top of mind when Biden went to the kingdom, but he also was there to fix a troubled relationship for a range of national security reasons. It was, as we wrote here, one of the most consequential visits by a US president to the region in years. Those reasons stand. 

This week shows that the US-Saudi reset is still a work in progress, nowhere near where Washington feels it needs to be, especially after the July visit. It is a complicated, transactional relationship, with little of the warmth at the top which has often characterized ties over more than seven decades.   

Biden, for his part, is weighing next steps, and he’s right to keep things in check, especially from inflamed reactions within his own party, and with midterm elections four weeks away. 

Saudi policy in perspective: Seven takeaways 

Here are seven takeaways as the administration weighs its next steps, which will affect not only US-Saudi ties, but also Iran, global energy security, and a wide range of national security challenges in the Middle east.   

• No regrets on reset. Asked if he now regretted his trip to Saudi Arabia, Biden said this week, "The trip was not essentially for oil. The trip was about the Middle East and about Israel and rationalization of positions.” He’s right, so let’s review what else was covered: deterring Iran (whether there’s a nuclear deal or not), the Yemen ceasefire, the global food crisis, rebuilding Gulf-Palestinian ties, Iraq’s energy security, regional integration, coordination against al-Qaeda, ISIS, etc. Those are all high-priority issues for the US, where Saudi Arabia plays a vital role.

• Iranian oil in context. The loss of 2 million bpd of cartel oil could be offset, in part, by 1 to 1.5 million bpd of Iranian oil, if the parties can agree on a return to the Joint Comprehensive Plan of Action. Iran may be moving in that direction, as we report here, but everything has been complicated by popular protests against the Tehran government. The Biden administration says that the global energy crisis does not factor into its nuclear dealing with Iran, and that’s true. But context matters, and so would an infusion of Iranian oil into world markets.

• Imagining bad to worse. Can you "imagine” a world without the US-Saudi alliance, asks Senate Majority Whip Dick Durbin (D-IL)? Yes, and by doing so, one can imagine the regional crises getting worse, not better. We are also on the cusp of what is likely to be a challenging winter for European energy security, and no end is in sight in the Ukraine war. There may be another ask of Riyadh, and the cartel, in the near future, if prices spike even higher. Threats and recrimination may be the impulse, but not necessarily the best strategy. Riyadh could expand its cooperation with Moscow and Beijing if it feels further slighted by the United States. 

Security ties benefit the US. One could further "imagine" that Russia, China and Iran would lead the cheers if the US bailed on arms sales and security cooperation with the kingdom, as Elizabeth Hagedorn reports that some in Congress are proposing. Seeking to calm the waters, State Department Deputy Spokesperson Vedant Patel said this week there are "no plans" to reconsider security ties. 

  • “Iran has hit Saudi oil fields in the past, and they could do so again, especially if they sense a lack of US commitment,” said Karen Elliott House, author of On Saudi Arabia. “Biden’s critics in the Congress need to be careful, given a volatile situation in the region.” 

• It’s about the economy for Saudi Arabia, too. For the kingdom, economic security, and therefore national security, depends on oil prices. Ties with the US matter too, but the hedge, in a close call, will be economic security. Sebastian Castelier reports here on how Saudi Arabia and the Gulf stand to be among the fastest growing economies in the world this year, fueled by oil revenues. The last time oil prices were over $100 per barrel was in July, before Biden’s visit. Since then, prices fell to $79 per barrel on Sept. 30 and are at $92 per barrel as we go to press, following the OPEC+ decision. The ambitious objectives of Vision 2030, just eight years away, require an oil price of $100 per barrel, or close to it. The kingdom has large-scale investment projects, including the futuristic city of NEOM (see the Al-Monitor Pro memo by Robert Mogielnicki), and wants to avoid backsliding on its planning. 

• Market uncertainty caused by Ukraine war is likely to continue. The official Saudi line is that is the reason to reduce production, in part because of US-led plans for a price cap on Russian exports. “The lack of details and the lack of clarity” about how the cap will be implemented add to concerns of “a period of uncertainty,” Energy Minister Prince Abdulaziz bin Salman told Bloomberg TV. For the Saudis, given this uncertainty, falling prices, as defined above, can’t be part of the deal. As the war goes on, and the energy and food crises continue, Washington can probably expect more dissonance, not less, from partners and allies outside the Western alliance, many of whom would prefer a diplomatic outcome to the war sooner rather than later.

• Saudi-Russia ties are not necessarily about Ukraine. For MBS and the kingdom, ties with Russia are a "permanent fixture," according to Saudi analyst Ali Shihabi. If the cartel decision helps Russia’s war effort in Ukraine, as White House Press Secretary Karine Jean-Pierre said Wednesday, that’s not the Saudi position, which is officially neutral. 

  • “Riyadh learned its lesson from the 2020 price war with Russia” which drove prices below zero, Shihabi said. From that point on, Riyadh and Moscow, as the world’s two largest oil exporters, have seen their interests aligned because they need each other to manage the global market and maintain price stability.  One or the other can upend price and market stability, as happened in 2020.  “So they are stuck in effect having to cooperate,” Shihabi explained.  

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