“I owe my success to having listened respectfully to the very best advice, and then going away and doing the exact opposite.”
— G K Chesterton
As US President Donald Trump concluded his Gulf tour, former President Jimmy Carter’s speech on July 15, 1979 couldn’t be more relevant: “I am tonight setting a clear goal for the energy policy of the US. Beginning this moment, this nation will never use more foreign oil than we did in 1977—never.”
The foundation of a long-lasting friendship between the US and the Saudi kingdom was laid on Valentine’s Day in 1945, when President Franklin D Roosevelt and King Abdul Aziz Ibn Saud met aboard USS Quincy on the Suez Canal. The bonhomie translated into an arrangement that provided military security to the monarchy and guaranteed oil supplies to the republic. Within three years, a consortium led by Standard Oil Company of California discovered the Ghawar oil field (later to be a part of Saudi Aramco), the world’s largest, in the Saudi desert. It heralded the kingdom’s undisputed leadership as the largest player in global oil exports, ushering interdependency between the two countries.
In 1977, OPEC provided 85 percent of its crude oil to the US, with Saudi Arabia the single largest source. Against 8.5 million barrels per day of supplies almost five decades back, the figure prognostically remained at 8.44 mbpd in 2024. The Canadian Oil patch currently accounts for more than 60 percent of the US import basket.
Keen to reclaim its share after having ceded it to “opportunists” within the cartel who erred on quota directives, Saudi Arabia initiated to open the spigots May onwards. Kazakhstan, Iraq and the UAE constantly breached their allocations. Kazakhstan’s Tengiz oilfield, the world’s sixth largest, is ironically owned and operated as a joint venture between the Kazakh government and American majors Chevron and ExxonMobil, with the latter two together holding 75 percent. Export of nearly 80 percent of Kazakh crude from this oilfield is facilitated by the Russia-controlled Caspian Pipeline Consortium. Such are the complexities of the oil industry, where collaborations flourish sans frontières.
Riyadh’s fractional rollback of output cuts is reminiscent of 2014, when the kingdom’s focus on maintaining market share and rattling US shale production shaved 50 percent off the prices. Historically, embargoes and high prices have introduced new actors on the oil stage. Though global resources continue to be substantially concentrated in the Persian Gulf, the present move is in sync with rising US production and an imminent supply upswing from Guyana and Brazil. The Saudi capacity-in-abeyance could fill in, should there be ‘disruption’ in Iran’s 1.6 mbpd exports. As the US administration seeks lower prices and pursues discreet diplomacy with Tehran, the move dovetails with Riyadh’s deepening engagement with Washington.
Saudi Arabia has pledged $600-billion investments in the US. Expansion and integration of petrochemical production at the Aramco-owned Motiva refinery in Port Arthur, Texas, the largest in North America, is among the 34-odd agreements between Aramco and the US energy sector. Trump’s solicitation of trillion-dollar Saudi investments indicates the path the kingdom is expected to follow, as it seeks favourable deals with White House.
Earlier, Riyadh hosted a Ukraine-US dialogue to broker peace in the Russian conflict. Trump’s historic meeting with the interim Syrian president and his intentions to relieve Damascus of sanctions, facilitated by Saudi Crown Prince Mohammad bin Salman, emphasises the kingdom’s role as a regional diplomatic player and a generational shift in traditional ties.
Nearby, the Abu Dhabi National Oil Company and the US plan to jointly invest $440 billion by 2035. Mudabala Energy, a subsidiary of UAE’s sovereign fund Mudabala Investment, has acquired equity in Texas-based Kimmeridge SoTex, marking its gateway to liquefied gas and other energy assets in the US. The Emirates have proposed $1.4-trillion investments in the US over a decade.
Qatar mediated the 2023 prisoner exchange between US and Iran, which led to the unfreezing of $6 billion of Tehran’s oil money, and brought Doha and Washington closer. Besides the offshore McDermott-Qatar Energy tie-ups, Trump’s tour galvanised a broader partnership as Doha committed $1.2 trillion in trade.
Trump’s deal-centric tour sought low oil prices, investment partnerships in the US, and a curb on Iran’s nuclear armament aspirations—perhaps in that order. But energy shall remain the pivot in future alliances in West Asia. The US president’s love for fossil fuels, while underlining the adverse impact of high prices, has emboldened the oil fraternity at home and in the Gulf to view this as ‘an unmissable opportunity’ to push back energy transition deadlines and further monetise conventional energy assets.
Though low prices complement the cost advantage of Gulf petro-states and reduce competition from high-cost producers, their endeavour to eschew dependency still relies on oil. Fiscal strains caused by cheaper oil could shift the timelines of Saudi Vision 2030, Qatar National Vision 2030 and Abu Dhabi Economic Vision 2030—which are all blueprints for long-term development.
Meanwhile, weak prices continue to spook US companies as they refrain from investing in new wells. We may see a protracted lull in the Texan fracking boom that began in 2008. The prevailing geopolitical and economic uncertainty, coupled with OPEC’s supply surge, has left US shale cowboys a confused lot. The pain could be deep and prolonged. On the flipside, Gulf petro-dollars could still fuel the ‘golden age of America’.
(Views are personal)
(ranjantandon@live.com)
Ranjan Tandon | Senior markets specialist and author