The Biden Administration Had a ‘Secret Oil Deal’ With the Saudis

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Oil

President Biden went to Jeddah in July, but Saudi leaders opted to cut oil production anyway. U.S. officials are furious that they were suckered. The administration assumed it had secured the Saudis to keep oil flowing and prices stable.

Oil
Israeli President Isaac Herzog speaks during a meeting with U.S. President Joe Biden in the Oval Office of the White House on October 26, 2022 in Washington, DC. [Doug Mills-Pool/Getty Images]

Sour Oil Deal leaves U.S. Officials fuming

While President Biden was planning a politically risky trip to Saudi Arabia this summer, his top aides thought they had made a secret deal to increase oil production through the end of the year. This deal could have helped him break a campaign promise to stay away from the kingdom and its crown prince.

That did not work out.

Mr. Biden went through with the trip. But earlier this month, Saudi Arabia and Russia led a group of oil-producing countries in voting to cut oil production by two million barrels per day. This was the opposite of what the administration thought it had gotten, as the Democratic Party struggles to deal with inflation and high gas prices before the November elections.

The move caused both administration to say many hurtful things, like the White House saying that Saudi Arabia was helping Russia in its war in Ukraine.

Lawmakers who were told about the trip’s benefits in classified briefings and other conversations that included details of the oil deal, which had not been made public before and was supposed to lead to a surge in production between September and December, are furious that Crown Prince Mohammed bin Salman tricked the administration.

This story is based on interviews with American officials, officials from Gulf Arab nations, and Middle East analysts familiar with the negotiations between the two countries.

What has happened in the last six months is a story of handshake deals, wishful thinking, missed signs, and pointing fingers over broken promises. After the murder of journalist Jamal Khashoggi, Mr. Biden swore to treat Saudi Arabia’s leader as a “pariah.” However, the murder of Khashoggi has made things worse between the U.S. and Saudi Arabia.

The story also shows how Saudi Arabia, led by its ambitious and sometimes cruel crown prince, seems to want to rely less on the United States. Prince Mohammed is trying to show Saudi Arabia as a powerhouse in its own right.

Even days before the OPEC+ decision, American officials said that the crown prince told them there would be no cuts to production. Instead, when they heard that Saudi Arabia was changing its mind, they tried in vain to change the minds of the royal court.

In a statement, the Saudi Energy Ministry said, “The kingdom rejects these allegations and stresses that these mischaracterizations from anonymous sources are wrong.”

The ministry also said that OPEC+ decisions are reached with the agreement of all members and are based only on market fundamentals, not politics. White House officials say they were angry and surprised by what they called a U-turn by Saudi Arabia, but they say their overall plan to lower energy costs is working.

Oil
Saudi Arabian Crown Prince Mohammed bin Salman Al Saud arrives [Mustafa Yalcin/Anadolu Agency via Getty Images]

Saudi, U.S. Misread Oil markets & Geopolitics

In a statement released Tuesday night, Adrienne Watson, a spokeswoman for the National Security Council, said that they disagree with Saudi Arabia about the most recent production cut. Still, that energy policy has always been about prices, not barrels. This policy is working, as crude oil prices have dropped more than 30% this year alone.

At the same time, U.S. officials are ready for another price spike in December if Europe puts an embargo on Russian oil and the Saudis don’t increase oil production to make up for the expected loss of supply. But officials think that would show that the Saudis helped the Russians hurt the efforts led by the U.S. and Europe.

Amos Hochstein, Mr. Biden’s energy envoy, said that even though they disagreed with the OPEC+ decision in early October, they knew they had to keep working with Saudi Arabia and other producers and talking to them to work sure the global energy market was stable and fair.

Some people think high-level American and Saudi officials misunderstood each other about the oil market and the politics around Russia, and the Biden administration will have time to figure out what went wrong.

Hussein Ibish, a professor at the Arab Gulf States Institute in Washington, compares Saudi decision-making to Kremlinology on steroids. But Ibish says it has come down to a small group of people close to the king and crown prince.

Oil
Russian President Vladimir Putin chairs a Security Council meeting via a video link at the Novo-Ogaryovo state residence outside Moscow on October 19, 2022. [SERGEI ILYIN/SPUTNIK/AFP/Getty Images]

Jeddah trip comes a cropper

Officials in the Biden administration started planning in the spring for the president to visit Saudi Arabia and Israel in the summer. They knew that such a trip would be met because Mr. Biden had criticized Prince Mohammed during the presidential campaign, ordered the release of an intelligence report that said the prince probably ordered the killing of Mr. Khashoggi, and had refused to meet with the crown prince, so far in his presidency.

But some of the president’s advisors saw short-term and long-term benefits to the trip and tried to fix things behind his back. They stressed how important it was to work with the kingdom on the war in Yemen and with Iran and get more countries in the area to recognize Israel. They hoped the trip would help Saudi Arabia’s efforts to get OPEC to make more oil since Russia’s war in Ukraine had sent fuel prices around the world through the roof.

This spring, Mr. Hochstein and Brett McGurk, the top National Security Council official for Middle East issues, met with Prince Mohammed and his staff to discuss the visit. American officials said they and the Saudis reached a two-part private oil deal in May.

First, the Saudis would move from September to July and August an OPEC+ production boost of 400,000 barrels per day. The Saudis would then persuade the cartel to announce an extra 200,000 barrels per day increase each month from September through December this year.

The White House said it would tell senators privately about its diplomatic efforts on issues like the Yemen war, Iran, and the relationship between Saudi Arabia and Israel. Members of the congressional intelligence and foreign affairs committees were briefed and talked to by Mr. McGurk and Mr. Hochstein about the parts of the agreements they had negotiated with the Saudis, such as the plan to increase oil production to lower prices.

In a statement released on Tuesday, Mr. McGurk said that the primary objective of his diplomatic work with the Saudis was to promote security and prosperity in the Middle East, “from getting a truce in Yemen to fighting Iran to connecting the region, especially with Israel.”

For the Democratic senators who went to the briefings, the Saudis’ possible oil offer meant relief for American consumers hurt by inflation and for Mr. Biden and his hurt party as they headed into the November elections.

When Vice President Biden arrived in Jeddah, Saudi Arabia, on July 15 for his meeting with Prince Mohammed and other Arab officials, oil prices had already dropped. The image of the American president shaking hands with the Saudi crown prince, who he had once criticized, lingers from the trip, but White House officials thought they had at least strengthened Saudi promises on several fronts.

Saudi officials seemed eager to show Americans that they had kept their promises. They showed Mr. Biden’s group a chart that showed oil prices had dropped from more than $120 per barrel when the Ukraine war started to $101 per barrel. Soon, the kingdom would be pumping more than 11 million barrels per day, a level it had only reached for a few months in the past several years.

Saudi Arabia’s energy minister, Prince Abdulaziz bin Salman. Officials in the U.S. think he played a significant role in getting the crown prince to limit oil production so that oil prices wouldn’t drop so low that they would hurt the kingdom’s plans for economic growth.

Oil
Saudi Crown Prince Abdullah bin Abdul-Aziz in Moscow, 02 September 2003. [VIKTOR KOROTAYEV/AFP/Getty Images]

Production Cuts Central to MBS Domestic Agenda

When the Americans left the summit, they thought the agreement was on the right track, and Prince Mohammed was happy. But in Riyadh, top Saudi officials told others in secret that they had no plans to increase oil production.

The first public warning came on August 3, when OPEC+ said production would go up by 100,000 barrels per day in September. This was only half of what U.S. officials thought the Saudis had promised.

In September, American officials started to hear that Saudi Arabia might be able to convince OPEC+ to announce a significant drop in oil production at their meeting on October 5. But U.S. officials tried to stop Prince Mohammed from doing something like that.

On September 24, American officials met Prince Mohammed and his brother, Saudi Energy Minister Prince Abdulaziz bin Salman, in person in the kingdom. U.S. officials at the meeting saw what happened to say that Prince Mohammed told the Americans that there would be no cuts in production.

American officials say that a high-level meeting on September 27 in which the energy minister, Prince Abdulaziz, argued that oil production cuts were needed to keep prices from falling to as low as $50 per barrel significantly affected Prince Mohammed. However, U.S. officials say that Prince Abdulaziz noted that if this happened, the Saudi government would not have enough money to pay for economic diversification programs that are important to Prince Mohammed’s domestic agenda.

Some U.S. officials think the Russians had something to do with Saudi Arabia’s decision. They point to Prince Abdulaziz’s close working relationships with top Russian officials close to Putin, such as Alexander Novak, the deputy prime minister in charge of energy policy.

Some U.S. officials say that by keeping oil prices high, Saudi Arabia is helping Moscow in Ukraine, which the Saudis deny.

Saudi officials vehemently denied marching in lockstep with Russia and said they saw themselves as a neutral mediator in Russia’s war with Ukraine. Some American officials think OPEC+ will meet again on December 4 to determine if Riyadh has sided with Moscow.

The White House is working with European allies to set up a price cap and a partial embargo on Russian oil sales starting in December. Their goal is to cut off Moscow’s resources and pressure Mr. Putin to end the war in Ukraine while keeping the world’s oil supplies stable.

But a lot of things depend on what the Saudis do. For example, let’s say they still need to announce a production increase at that December meeting, when Russian oil may be taken off the market. In that case, oil prices might go up, hurting Mr. Biden’s efforts against Russia and adding to global inflation.

Prince Abdulaziz said that was unlikely at Tuesday’s annual investment summit in Riyadh. He said that Saudi Arabia was saving up spare capacity to be ready for such shocks and that the kingdom felt a huge responsibility to be a “reliable supplier of oil.”

Prince Abdulaziz said that the kingdom would make the best decision for itself.

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