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Analysis: A Complicated Alliance

Council on Foreign Relations

May 15, 2008
Author: Lee Hudson Teslik

Seventy-five years ago this month, California’s Standard Oil Company closed a deal with the finance minister of Saudi Arabia, a country the United States had only officially recognized two years earlier. The agreement granted the oil firm an exploration contract and initiated a multifaceted and sometimes thorny bilateral economic relationship. Today, oil still dominates U.S.-Saudi ties, which will go on display May 16 when President Bush meets Saudi’s King Abdullah. But the fairly straightforward buy-sell dynamic between the world’s leading importer and leading exporter of crude is increasingly complicated by a host of other issues, from security cooperation to currency concerns.

Bush’s meetings with Abdullah spotlight this complexity. The past year has witnessed a historic run-up of oil prices, and some analysts are now projecting a “super-spike” (WSJ) that could bring even greater price increases. With U.S. consumers feeling the pinch, Bush is widely expected to press Saudi officials to boost oil production as a way of easing prices. U.S. senators have already threatened to block a major arms deal (AFP) between the countries if oil prices continue their rise.

Some analysts say this focus is misguided. Given the way crude oil trades, there is only so much that can be done by Saudi Arabia, which already produces nearly a quarter of the world’s oil. To a certain extent Riyadh already runs interference for Washington within the Organization of the Petroleum Exporting Countries (OPEC), where some member states, including Iran and Venezuela, are pushing for production cuts (IHT). Saudi’s King Abdullah, who holds significant sway in the bloc, has resisted these calls and argued that OPEC should hold production steady. Given this dynamic, some analysts say if Bush lectures Abdullah on oil prices, he will be met with little more than polite smiles (Reuters).

Read the rest of this article on the cfr.org website.

Copyright 2008 by the Council on Foreign Relations. This material is republished on GlobalSecurity.org with specific permission from the cfr.org. Reprint and republication queries for this article should be directed to cfr.org.