Keep Your Eyes on Saudi Arabia

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Saudi Arabia provides the U.S. with oil and props up our dollar in exchange for weapons and occasional military support. If the U.S. decides that this arrangement is no longer beneficial, there are likely many other emerging nations who would love to take their place.

 
by Jerry Robinson, FTMDaily.com Editor-in-Chief

In case you haven’t heard by now, tensions are intensifying between the world’s largest net oil exporter, Saudi Arabia, and the world’s lone superpower, the United States.

In a series of unprecedented moves designed to provoke attention from the West, the Saudis:

1) Abruptly chose not to deliver a scheduled address at the United Nations General Assembly.

2) Refused a coveted seat on the United Nations Security Council, after aggressively campaigning for the position for at least a year.

But it was the recent decision by Saudi Arabia’s intelligence chief, Prince Bandar Bin Sultan Al Saud, to “scale back cooperation” with the U.S. on Syria, that firmly established a downward spiral in U.S.-Saudi relations.

According to a report by the Wall Street Journal:

“Saudi Arabia’s intelligence chief told European diplomats this weekend that he plans to scale back cooperating with the U.S. to arm and train Syrian rebels in protest of Washington’s policy in the region.”

Bandar added that the oil-rich kingdom’s decision to refuse a seat on the UN Security Council was “a message for the US, not the UN.”

If you are familiar with the petrodollar arrangement that exists between the U.S. and Saudi Arabia, the news of a potential fallout in U.S.-Saudi relations should be cause for concern. (If you are not familiar with the petrodollar system and how it underpins the U.S. dollar, you should start here.)

Why Are The Saudis So Angry?

The tensions between the U.S. and Saudi Arabia (perhaps the world’s oddest couple) come after several disputes over Washington’s policy decisions within the Middle East.

Let’s briefly examine these points of tensions between the two allies.

IRAN

Iran is Saudi Arabia’s mortal enemy. The two nations have very different interpretations of Islam, and their political philosophies and views on how to govern the Middle East could not be more different. The Iranians believe that the Saudis have perverted Islam by embracing materialism and befriending the West (i.e. infidels). The Iranians, who are predominantly Shi’ite, openly long for a restoration of an Islamic Caliphate. To this end, the Saudis have long accused the Iranians of exploiting the Shi’ite populations within Arab countries in order to overthrow the Sunni-controlled monarchies. Since the Islamic Revolution of 1979, Iran has been cut off from the West and viewed as an enemy. However, recent nuclear talks between the Obama administration and Iran’s new leadership, under President Hassan Rouhani, have the Saudi Royal Family deeply concerned that current sanctions against Iran may be lifted. Even worse, the Saudis fear that Iran could once again gain international legitimacy. So far, the peace talks between Iran and the West have been productive, with another round of talks scheduled for November. The Saudis remain livid.

SYRIA

As the primary supporter of the Syrian “rebels,” the Saudis were greatly invested in a U.S. decision to launch airstrikes against the Assad regime back in August. In the weeks leading up to the planned airstrikes, Saudi leaders requested detailed U.S. plans to protect Saudi’s vast oil fields in the Eastern Province from potential blowback or sabotage. Tensions began to flare when the Saudis were informed that U.S. military forces had no plans to protect the entire region. The Saudis angrily responded with a warning that the kingdom would seek other defense partners who placed a greater value on Saudi’s oil supplies.

Then, the dispute grew even deeper when Syrian President Bashar al-Assad suddenly agreed to a peace deal, brokered by Russia, that included a plan to disarm the country’s arsenal of chemical weapons. The Saudis were outraged when President Obama embraced the peace deal and made the decision to scrap plans to bomb Syria.

In an official statement, one Saudi official stated:

“Allowing the ruling regime in Syria to kill its people and burn them with chemical weapons in front of the entire world and without any deterrent or punishment is clear proof and evidence of the U.N. Security Council’s inability to perform its duties and shoulder its responsibilities.”

U.S. Secretary of State, John Kerry, recently responded to these Saudi concerns:

“We know that the Saudis were obviously disappointed that the (Syrian) strike didn’t take place and had questions about some of the other things that may be happening in the region… I am convinced we are on the same page as we are proceeding forward and I look forward to working very closely with our Saudi friends and allies”.

Because the Saudis remain intent on removing Assad from power, their response was to decrease military cooperation with the U.S. while increasing their alliance with other partners, including Jordan and France.

EGYPT

Last July, the U.S.-Saudi relations were strained when the Saudis backed the Egyptian military’s overthrow of the country’s democratically elected president, Mohammad Morsi. The U.S., on the other hand, provided support to President Morsi and opposed the Saudi-backed coup. In the wake of the coup, the U.S. declared it would cut foreign aid money to Egypt. The Saudis responded with an announcement that they would replace any foreign aid to Egypt lost as a result of the coup.

BAHRAIN

Back in 2011, U.S.-Saudi relations came under pressure when Washington failed to back the Saudis in condemning the Shi’ite uprising in Bahrain. Bahrain, which has a Sunni-ruled government but a Shi’ite majority population, is an important ally to the Saudis. The Saudis feared that the Shi’ite uprising in Bahrain could spill over into the rest of the Arabian peninsula. The loyalties of the U.S., however, were divided over Bahrain as the country’s strategic location on the Persian Gulf serves as the headquarters for the Fifth Fleet of the U.S. Navy. Since 1944, the U.S. Fifth Fleet has safeguarded the Strait of Hormuz, through which 20% of the world’s total oil supply passes each day. Considering that the U.S. has spent $8 trillion securing the Strait of Hormuz, the U.S. was unlikely to rock the boat with Bahrain’s government. Regardless, the Saudis were angered at America’s failure to provide support.

ISRAEL/PALESTINE

The Saudis have complained that the West has failed to deliver a long-awaited peace to the Israeli-Palestinian issue. The Saudis, who clearly side with the Palestinians, have become impatient towards what they view as incompetence on the part of the UN in resolving the issue. While it seems that the elusive peace between Israel and the Palestinian people may be closer than ever before, it is doubtful that the Saudis will be happy with the final outcome.

So, What Does it all Mean?

Despite the sharp escalation of tensions between the U.S. and the Saudis, both countries continue to share many similar goals, and their strengths complement each other. The U.S. possesses immense military might while Saudi Arabia boasts unrivaled intelligence sources within the region. This is a potent combination amid constant instability in the Middle East, so cooperation between the two countries is likely to continue. The two countries openly share intelligence in an effort to counter “terrorism,” in such places as Afghanistan and Yemen. For example, in 2011, the Saudis permitted the U.S. to build a secret drone base in order to launch attacks against radical elements within Yemen.

But the original “oil-for-dollars” arrangement that was set up back in the 1970s is certainly becoming more brittle as the U.S. has become less dependent upon Middle East oil and as other oil-thirsty nations seek to replace the U.S. China, for example, is now the world’s largest net oil importer and much of those imports are coming from Saudi Arabia.

saudi-oil-exports

But remember, despite Saudi differences with the U.S., the monarchy is even more at odds with China and Russia, as they have strongly opposed intervention in Syria. In addition, they, along with all of the BRICS nations, are strongly allied with Iran, whose Hezbollah militias are supporting Assad’s regime against the Saudi-backed Syrian rebels.

Of course, another possibility is that the recent moves by Saudi Arabia may represent deep fractures within the kingdom itself. For example, during a recent meeting in Paris between U.S. Secretary of State John Kerry and Saudi Foreign Minister Prince Saud Al Faisal, there was reportedly no mention of Prince Bandar’s concerns or comments about “pulling away” from the U.S. This could suggest internal debate within the kingdom itself on how to best handle recent policy decisions made by the U.S.

In the final analysis, it seems that U.S.-Saudi relations have become less relevant in recent years as their interests appear to be diverging. After all, Saudi Arabia remains the world’s #1 exporter of Wahabi extremist jihadi Islamic terrorism, even as the U.S. claims to be fighting such terrorism. For decades, the Saudis have relied upon the U.S. to act as their mercenary in the Middle East. In exchange, the Saudis have agreed 1) to accept only U.S. dollars for their oil and 2) to hold most of their foreign assets, estimated at nearly $700 billion, in U.S. dollars.

In essence, the Saudis provide us with oil and prop up our dollar in exchange for weapons and occasional military support. If the U.S. decides that this arrangement is no longer beneficial, there are likely many other emerging nations who would love to take their place.

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About the Author

Jerry Robinson

Jerry Robinson is the author of Bankruptcy of Our Nation: Your Financial Survival Guide. In 2010, Jerry created FTMDaily.com with a mission to wake up Americans and share with them the principles of true financial and spiritual liberty. Every Tuesday he hosts the FTMWeekly Radio, a podcast covering economic and geopolitical topics. Jerry has been blessed to be able to lecture around the globe on the topic of economic and geopolitical trends. He holds a degree in Economics from the University of Tulsa and resides with his family in the beautiful Ozark mountains. See more