Saudi Arabia has warned the US of “major” economic consequences if it retaliates against the kingdom’s decision to cut oil production by 2 million barrels per day, according to some classified documents as reported by US media.
The document reveals that Saudi Crown Prince Mohammed bin Salman privately threatened to sever ties and impose significant economic costs on the US if President Biden followed through on his vow to impose “consequences” on the kingdom for slashing oil output amid high energy prices and fast-approaching elections in the US.
The crown prince’s threat came as a surprise to US officials, who had hoped to persuade their Arab allies to increase oil production and ease the pressure on consumers and businesses facing rising inflation.
Saudi Arabia, however, defended its move as a necessary measure to prevent a global recession and protect its own interests. The kingdom’s energy minister, Prince Abdulaziz bin Salman al-Saud, said that the cartel needed to be proactive as central banks in the West moved to tackle inflation with higher interest rates, which could reduce demand for oil and drive its price down.
Saudi Arabia is the world’s largest oil exporter and has the lowest extraction cost in the world, at around $3 per barrel. That means the vast majority of the revenue earned from each barrel goes into its coffers. The kingdom relies heavily on oil revenues to fund its budget and social programs, and cannot afford to let oil prices go below a certain level.
The oil dispute has strained the decades-old alliance between the US and Saudi Arabia, which share strategic interests in the Middle East and beyond. The Biden administration has also been critical of the kingdom’s human rights record and its role in the Yemen war.
Analysts say that Saudi Arabia is trying to assert its independence and influence in the global oil market, while also sending a message to the US that it cannot take its partnership for granted.
The US, meanwhile, is facing domestic pressure to act on the energy crisis and reduce its dependence on foreign oil. The White House has said that it is considering releasing oil from its strategic reserve and imposing sanctions on countries that manipulate the oil market.