Why America Is More Dependent Than Ever on Saudi Arabia
Why America Is More Dependent Than Ever on Saudi Arabia - New York Times
August 6, 2005
Why America Is More Dependent Than Ever on Saudi Arabia
By JAD MOUAWAD
President Bush might not have turned up personally in Riyadh yesterday but he certainly sent a high-powered delegation to pay his respects to the new leader of Saudi Arabia, King Abdullah.
The American turnout, led by Vice President Dick Cheney, former President George H. W. Bush, and former Secretary of State Colin L. Powell, was the latest signal that relations between the two countries have thawed since the strains of 9/11. But it was also an acknowledgment of a simple fact: like it or not, the United States is more dependent than ever on Saudi Arabia.
"The Saudis are in a great position today," said Jean-François Seznec, a professor at Columbia University's Middle East Institute. "We cannot be enemies with everybody. We need their oil desperately."
Indeed, the alternatives to Saudi Arabia are fewer today than seemed to be the case just three years ago. Predictions of a boom in Iraqi oil have been proved wrong; Iran, OPEC's second-largest oil producer, is locked on a collision course with the West; Venezuela is following an erratic path; and Russia's commitment to market reforms and foreign investments seems increasingly unreliable.
All this has added to Saudi Arabia's already impressive clout. What is more, other powers - mainly from Asia - seek greater access to its resources and have been increasingly courting the Saudis. "They can play the United States against other buyers, like China," Mr. Seznec said. "And why wouldn't they?"
American officials, furious over Saudi Arabia's handling of the investigations after 9/11, recognize this new reality. The warmer relations between Saudi Arabia and the United States were on display last April, when Crown Prince Abdullah - who succeeded his half brother, Fahd, on Monday as king - visited President Bush's ranch in Crawford, Tex. As a sign of public diplomacy, and personal bonds, they kissed on the cheek and held hands.
Yesterday represented a kind of reunion for the Americans who led the first gulf war in 1991. The United States delegation met with King Abdullah at the monarch's farm near Riyadh. In any event, the group remained in the country less than four hours.
"As the world's largest producer and as the world's largest consumer, our two countries have a special relationship," Samuel W. Bodman, the secretary of energy, said earlier this year after meeting in Washington with his Saudi counterpart, Ali al-Naimi. "We are, at least in certain respects, partners."
Even the contentious issue of high oil prices has been smoothly swept under the rug. Over the last two years, crude oil prices have more than doubled, and closed yesterday at a record $62.31, up 1.5 percent on the New York Mercantile Exchange.
The administration has acknowledged that Saudi Arabia has been doing all it can to step up production, and the current spike was fed by higher demand, not curbs from suppliers.
"The Saudis aren't feeling any pressure from the high prices," said Thomas W. Lippman, a scholar at the Middle East Institute in Washington. "People are waving money at them for something they are going to produce anyway. So why not take it?"
At the same time, he said, "they want to keep the price of oil somewhere between our upper lips and our nose."
That is quite a change from four years ago. After the attacks on New York and Washington of Sept. 11, 2001, Saudi Arabia's position as the supplier of choice was threatened. Fifteen of the 19 hijackers were Saudi nationals, and the man who inspired the attacks, Osama bin Laden, was born in Saudi Arabia; and Saudi funds had financed Taliban schools in Afghanistan. To make matters worse, Saudi intelligence agencies dragged their feet in sharing information with their American counterparts.
Then came the Iraq war. Among the fringe benefits of removing Saddam Hussein from power, went the thinking in the United States at the time, would be a rapid recovery of that country's oil production. In some hawkish circles in Washington, it was thought that a free Iraq would eventually undercut OPEC's power and marginalize Saudi Arabia.
The day American troops entered Baghdad, Mr. Cheney told the American Society of Newspaper Editors that Iraq would be able to produce as much as three million barrels a day, "hopefully, by the end of the year."
Still more optimistic forecasts predicted that Iraqi production would climb to six million barrels a day within five years, and provided more fodder to the theory that American troops went into Iraq to break OPEC's back, weaken the Saud dynasty and reduce the kingdom's oil-based influence.
Of course, these predictions turned out to be wrong. Iraq's production is struggling at two million barrels a day because of the relentless targeting of pipelines and infrastructure by the insurgency. Exports lag prewar levels and today few, even among Washington's most radical neoconservatives, expect that a restoration of Iraq's oil sector will quickly chip away at Saudi Arabia's clout. The kingdom remains unrivaled.
Iran's production comes in a distant second, but that country, which just elected a conservative president, is at odds with the international community over its decision to develop a civilian nuclear program. That leaves Libya, a country at the center of attention from American diplomats and oil executives last year, but its reserves are less than a sixth those of Saudi Arabia.
"All the countries we thought we could diversify our production away from Saudi Arabia haven't lived up to our expectations," said Amy Myers Jaffe, the associate director of Rice University's energy program in Houston. "We are definitely more dependent on the Saudis, absolutely, than we were before 9/11."
Saudi Arabia has proved time and again that it is indispensable to the stability of oil markets.
In 1990, when Iraq invaded Kuwait and took more than four million barrels a day off the market, it was Saudi Arabia that cranked up its idle production to keep prices at a moderate level. With the American invasion of Iraq in March 2003 it was Saudi Arabia that again made up most of the lost production, stretching its own capacity to the limit.
"We're in a period of slow recovery," said Rachel Bronson, a Middle East specialist at the Council for Foreign Relations in New York. "The administration is willing to publicly acknowledge they are working with the Saudis on the war on terror. But I don't believe things will ever be the same. You will never have the ease of the intimate relationship that existed in the 1980's."
Saudi Arabia currently produces about 9 million barrels a day, or 11 percent of world production, out of a total capacity of 10.5 million barrels of oil a day.
The bulk of their exports, about 60 percent, goes to Asia, with Japan and China now counting Saudi Arabia as their prime supplier. About 1.5 million barrels a day make it to the United States, about 15 percent of American imports - but Saudi oil executives make it a point, politically, to remain among the nation's top three suppliers, with Canada and Mexico.
Ms. Bronson expects a tougher relationship to emerge with King Adbullah than during King Fahd's rule.
"The United States will continue to be very reliant on Middle Eastern oil but so are other countries," she said. "This means they can undermine American interests in the region in a way they couldn't before."
Mai Yamani, a research fellow at the Royal Institute for International Affairs in London, said the Saudi-American relation remains based on the same quid pro quo.
"The American support to the House of Saud is conditional on the flow of oil," she said.
In recent months, Saudi oil officials have begun openly discussing their new investment plans - the first major drive to increase capacity in the kingdom since 1981. It calls for Saudi Aramco, the state-owned oil company, to increase its production capacity to 12.5 million barrels a day by 2009, drill new exploration and wildcat wells, and draw up what Aramco calls a plan to pump up to 15 million barrels a day.
"The Saudis are really stepping on the gas in terms of investments," said Daniel Yergin, president of the Cambridge Energy Research Associates, a prominent oil consultancy. "Nobody else has the capability to add two million barrels of capacity in such a short time. That's like adding a new major oil-exporting country from scratch."
Still, that may be far from enough to meet rising demand. According to United States government estimates, the world will need Saudi Arabia to produce some 18 million barrels a day by 2020 and 22.5 million by 2025. But Saudi officials - and many Western analysts - consider these forecasts unrealistic.
Questions still surround Saudi Arabia, fanning doubt over the country's ability to meet the world's growing demand for oil. These revolve around the true extent of its huge oil reserves, the rate at which its fields are depleting, and the output at Ghawar, the world's largest oil field, which accounts for half the nation's output.
Matthew Simmons, a Houston-based investment banker, has recently made popular the notion - held by a tiny minority - that Saudi Arabia is fudging the rate at which its fields are depleted and, in speeches and in a recently published book, contends the country has reached a peak in production. While few oil analysts agree with Mr. Simmons, some remain skeptical of Saudi Aramco's ability to increase capacity as planned.
The Saudis say that, if anything, the real size of its reserves is being underestimated. Mr. Naimi, the Saudi oil minister, said last December that the country's oil reserves could be bolstered by another 200 billion barrels, to 461 billion barrels, "either through new discoveries or through increasing production from known deposits."
Ms. Jaffe of Rice University said: "Given Saudi Arabia's role, it's very important that they be very transparent. But unfortunately that remains an issue."
August 6, 2005
Why America Is More Dependent Than Ever on Saudi Arabia
By JAD MOUAWAD
President Bush might not have turned up personally in Riyadh yesterday but he certainly sent a high-powered delegation to pay his respects to the new leader of Saudi Arabia, King Abdullah.
The American turnout, led by Vice President Dick Cheney, former President George H. W. Bush, and former Secretary of State Colin L. Powell, was the latest signal that relations between the two countries have thawed since the strains of 9/11. But it was also an acknowledgment of a simple fact: like it or not, the United States is more dependent than ever on Saudi Arabia.
"The Saudis are in a great position today," said Jean-François Seznec, a professor at Columbia University's Middle East Institute. "We cannot be enemies with everybody. We need their oil desperately."
Indeed, the alternatives to Saudi Arabia are fewer today than seemed to be the case just three years ago. Predictions of a boom in Iraqi oil have been proved wrong; Iran, OPEC's second-largest oil producer, is locked on a collision course with the West; Venezuela is following an erratic path; and Russia's commitment to market reforms and foreign investments seems increasingly unreliable.
All this has added to Saudi Arabia's already impressive clout. What is more, other powers - mainly from Asia - seek greater access to its resources and have been increasingly courting the Saudis. "They can play the United States against other buyers, like China," Mr. Seznec said. "And why wouldn't they?"
American officials, furious over Saudi Arabia's handling of the investigations after 9/11, recognize this new reality. The warmer relations between Saudi Arabia and the United States were on display last April, when Crown Prince Abdullah - who succeeded his half brother, Fahd, on Monday as king - visited President Bush's ranch in Crawford, Tex. As a sign of public diplomacy, and personal bonds, they kissed on the cheek and held hands.
Yesterday represented a kind of reunion for the Americans who led the first gulf war in 1991. The United States delegation met with King Abdullah at the monarch's farm near Riyadh. In any event, the group remained in the country less than four hours.
"As the world's largest producer and as the world's largest consumer, our two countries have a special relationship," Samuel W. Bodman, the secretary of energy, said earlier this year after meeting in Washington with his Saudi counterpart, Ali al-Naimi. "We are, at least in certain respects, partners."
Even the contentious issue of high oil prices has been smoothly swept under the rug. Over the last two years, crude oil prices have more than doubled, and closed yesterday at a record $62.31, up 1.5 percent on the New York Mercantile Exchange.
The administration has acknowledged that Saudi Arabia has been doing all it can to step up production, and the current spike was fed by higher demand, not curbs from suppliers.
"The Saudis aren't feeling any pressure from the high prices," said Thomas W. Lippman, a scholar at the Middle East Institute in Washington. "People are waving money at them for something they are going to produce anyway. So why not take it?"
At the same time, he said, "they want to keep the price of oil somewhere between our upper lips and our nose."
That is quite a change from four years ago. After the attacks on New York and Washington of Sept. 11, 2001, Saudi Arabia's position as the supplier of choice was threatened. Fifteen of the 19 hijackers were Saudi nationals, and the man who inspired the attacks, Osama bin Laden, was born in Saudi Arabia; and Saudi funds had financed Taliban schools in Afghanistan. To make matters worse, Saudi intelligence agencies dragged their feet in sharing information with their American counterparts.
Then came the Iraq war. Among the fringe benefits of removing Saddam Hussein from power, went the thinking in the United States at the time, would be a rapid recovery of that country's oil production. In some hawkish circles in Washington, it was thought that a free Iraq would eventually undercut OPEC's power and marginalize Saudi Arabia.
The day American troops entered Baghdad, Mr. Cheney told the American Society of Newspaper Editors that Iraq would be able to produce as much as three million barrels a day, "hopefully, by the end of the year."
Still more optimistic forecasts predicted that Iraqi production would climb to six million barrels a day within five years, and provided more fodder to the theory that American troops went into Iraq to break OPEC's back, weaken the Saud dynasty and reduce the kingdom's oil-based influence.
Of course, these predictions turned out to be wrong. Iraq's production is struggling at two million barrels a day because of the relentless targeting of pipelines and infrastructure by the insurgency. Exports lag prewar levels and today few, even among Washington's most radical neoconservatives, expect that a restoration of Iraq's oil sector will quickly chip away at Saudi Arabia's clout. The kingdom remains unrivaled.
Iran's production comes in a distant second, but that country, which just elected a conservative president, is at odds with the international community over its decision to develop a civilian nuclear program. That leaves Libya, a country at the center of attention from American diplomats and oil executives last year, but its reserves are less than a sixth those of Saudi Arabia.
"All the countries we thought we could diversify our production away from Saudi Arabia haven't lived up to our expectations," said Amy Myers Jaffe, the associate director of Rice University's energy program in Houston. "We are definitely more dependent on the Saudis, absolutely, than we were before 9/11."
Saudi Arabia has proved time and again that it is indispensable to the stability of oil markets.
In 1990, when Iraq invaded Kuwait and took more than four million barrels a day off the market, it was Saudi Arabia that cranked up its idle production to keep prices at a moderate level. With the American invasion of Iraq in March 2003 it was Saudi Arabia that again made up most of the lost production, stretching its own capacity to the limit.
"We're in a period of slow recovery," said Rachel Bronson, a Middle East specialist at the Council for Foreign Relations in New York. "The administration is willing to publicly acknowledge they are working with the Saudis on the war on terror. But I don't believe things will ever be the same. You will never have the ease of the intimate relationship that existed in the 1980's."
Saudi Arabia currently produces about 9 million barrels a day, or 11 percent of world production, out of a total capacity of 10.5 million barrels of oil a day.
The bulk of their exports, about 60 percent, goes to Asia, with Japan and China now counting Saudi Arabia as their prime supplier. About 1.5 million barrels a day make it to the United States, about 15 percent of American imports - but Saudi oil executives make it a point, politically, to remain among the nation's top three suppliers, with Canada and Mexico.
Ms. Bronson expects a tougher relationship to emerge with King Adbullah than during King Fahd's rule.
"The United States will continue to be very reliant on Middle Eastern oil but so are other countries," she said. "This means they can undermine American interests in the region in a way they couldn't before."
Mai Yamani, a research fellow at the Royal Institute for International Affairs in London, said the Saudi-American relation remains based on the same quid pro quo.
"The American support to the House of Saud is conditional on the flow of oil," she said.
In recent months, Saudi oil officials have begun openly discussing their new investment plans - the first major drive to increase capacity in the kingdom since 1981. It calls for Saudi Aramco, the state-owned oil company, to increase its production capacity to 12.5 million barrels a day by 2009, drill new exploration and wildcat wells, and draw up what Aramco calls a plan to pump up to 15 million barrels a day.
"The Saudis are really stepping on the gas in terms of investments," said Daniel Yergin, president of the Cambridge Energy Research Associates, a prominent oil consultancy. "Nobody else has the capability to add two million barrels of capacity in such a short time. That's like adding a new major oil-exporting country from scratch."
Still, that may be far from enough to meet rising demand. According to United States government estimates, the world will need Saudi Arabia to produce some 18 million barrels a day by 2020 and 22.5 million by 2025. But Saudi officials - and many Western analysts - consider these forecasts unrealistic.
Questions still surround Saudi Arabia, fanning doubt over the country's ability to meet the world's growing demand for oil. These revolve around the true extent of its huge oil reserves, the rate at which its fields are depleting, and the output at Ghawar, the world's largest oil field, which accounts for half the nation's output.
Matthew Simmons, a Houston-based investment banker, has recently made popular the notion - held by a tiny minority - that Saudi Arabia is fudging the rate at which its fields are depleted and, in speeches and in a recently published book, contends the country has reached a peak in production. While few oil analysts agree with Mr. Simmons, some remain skeptical of Saudi Aramco's ability to increase capacity as planned.
The Saudis say that, if anything, the real size of its reserves is being underestimated. Mr. Naimi, the Saudi oil minister, said last December that the country's oil reserves could be bolstered by another 200 billion barrels, to 461 billion barrels, "either through new discoveries or through increasing production from known deposits."
Ms. Jaffe of Rice University said: "Given Saudi Arabia's role, it's very important that they be very transparent. But unfortunately that remains an issue."
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