Saudi-U.S. relations to withstand North American oil boom

WASHINGTON Tue Apr 30, 2013 1:04am EDT

Saudi Arabian Oil Minister Ali al-Naimi listens to journalist during an OPEC meeting in Vienna December 12, 2012. REUTERS/Heinz-Peter Bader

Saudi Arabian Oil Minister Ali al-Naimi listens to journalist during an OPEC meeting in Vienna December 12, 2012.

Credit: Reuters/Heinz-Peter Bader

WASHINGTON (Reuters) - Experts say Asia and Iran are the keys to maintaining a strong - but evolving - U.S.-Saudi Arabia energy relationship.

Saudi Oil Minister Ali al-Naimi is expected to share his optimistic view on the future of Asian oil demand on Tuesday when he gives a major energy speech, billed as the first in the United States in four years.

As the United States produces oil at the highest levels in 20 years thanks to the shale boom, Saudi Arabia's confidence in Asian markets could help keep relations between the two countries on track.

"The Saudis don't see the North American oil boom as a threat, not in the context of the global oil market," said a Washington-based energy consultant to governments and businesses, who did not want to be named.

Naimi said in a speech early this month in Doha that nobody should fear new oil supplies when global demand is rising, adding that Asia's population growth should be a driver for future oil demand. He is expected to repeat that message during his speech at the Center for Strategic and International Studies in Washington on Tuesday.

Saudi Arabia, the main source of global spare oil production capacity, will be one of the few places with the ability to supply China and other Asian countries.

In contrast, extra barrels from North Dakota and Texas will be consumed in the United States, at least until laws are changed to allow the country's producers to export substantial amounts of crude.

SPECIAL RELATIONSHIP

The relationship between Riyadh and Washington may be changing but the two countries still share important goals on balancing oil markets going forward. One is to keep oil prices from going too high in order to keep Iran from in check.

The United States is trying to choke funds to Tehran's disputed nuclear program through the application of sanctions on its oil sales. High global crude prices could hurt that effort.

Saudi Arabia, a longtime foe of Iran, also does not want Iran to get nuclear weapons and is expected to keep oil prices stable.

"We are still partners but less intimate partners than we once were," said Chas Freeman, who served as U.S. ambassador to Saudi Arabia under former President George H. W. Bush.

For decades Saudi Arabia and the United States had a special relationship: the kingdom provided the United States oil, and the United States provided Saudi Arabia protection against enemies. As Saudi Arabia becomes less of an important supplier to the United States, the world's biggest oil consumer, some see that special relationship declining.

Even as Saudi looks to other markets, it still is the second largest oil exporter to the United States after Canada, with shipments averaging 1.4 million barrels per day in the first 10 months of last year.

As part of the changing relationship, Saudi has been buying tens of billions of dollars worth of U.S. military aircraft while turning to other oil customers.

"Saudi seems to be arming themselves on the assumption that they are going to have to play a larger role in their own defense," Freeman said.

Analysts will be watching for clues in Naimi's speech that in the face of weak demand from Europe and flat Asian near-term consumption, the kingdom may want to support oil prices from falling.

David Goldwyn, who led international energy affairs at both the State Department and the Department of Energy, said if Naimi's lead message is the need to keep oil prices stable, it could signal a production cut is likely in the near future.

(Reporting by Timothy Gardner; Editing by Bill Trott)

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Comments (3)
scythe wrote:
american foreign policy is too embedded in the sphincter of saudi arabia oil that it doesn’t matter what anyone thinks

if the saudis say “jump!”
the american govt says “how high?”

Apr 30, 2013 7:23am EDT  --  Report as abuse
ConstFundie wrote:
Of coarse relations are not strained. First, the US government does not own N. American oil and gas resources. “US” pressures are at the behest of Big oil companies and OPEC. Second, The Corporations owning US oil and gas want exactly the same thing as Saudi Arabia (OPEC), i.e., maximal world gas prices, through non-competitive and even cooperative pricing. Big oil corporations do everything they can to make sure all oil in the middle east is under cooperative price control, and at the very least under OPEC control.

Apr 30, 2013 10:11am EDT  --  Report as abuse
LauraKearns wrote:
“The Saudis don’t see the North American oil boom as a threat, not in the context of the global oil market.” This is proof that Big Oil does indeed have a monopoly on the fuel market. It doesn’t matter how much oil is produced domestically, because oil is a global commodity its price will always be set by the highest bidder. Americans won’t truly be able to enjoy cheap fuel prices until the market is free and open to replacement fuels.

May 01, 2013 6:40pm EDT  --  Report as abuse
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