Saudi’s MbS will eventually take Biden’s call

NEW YORK, March 10 (Reuters Breakingviews) - Mohammed bin Salman isn’t taking Joe Biden’s calls. Saudi Arabia’s de facto leader has ignored pleas from the American president to pump more oil after the United States and Britain boycotted Russian output, the Wall Street Journal reported. That’s unlikely to last.

Crude prices have spiked 20% since Russia invaded Ukraine last month. That’s partly due to sanctions as well as a broader wariness from oil buyers. Though the United States produced 11.2 million daily barrels of crude oil in 2021, it will struggle to fully replace the more than 4 million barrels a day previously exported by Russia. Saudi, which in 2021 pumped 9.1 million daily barrels, has the capacity to help.

Along with the Organization of the Petroleum Exporting Countries and other drillers including Russia, Saudi has scaled back production since the global pandemic pushed Brent crude as low as $20 a barrel in April 2020. The country has scope to produce 12.2 million barrels per day, the International Energy Agency reckons. Throw in the United Arab Emirates and spare capacity is theoretically more than 3 million barrels a day. That could make a big difference to the market: the suggestion that the UAE might pump more sent oil prices down 13% to $111 a barrel on Wednesday.

MbS has an incentive to keep Biden on hold. It’s less than a year since the U.S. president publicly blamed the crown prince for the October 2018 killing of journalist Jamal Khashoggi and prioritized communication with his father, King Salman. The Saudi government budget breaks even with oil prices at $67 a barrel, according to S&P Global, so the price spike provides a big fiscal boost. Expensive oil has also pushed Saudi Aramco’s (2222.SE) market capitalization above $2 trillion, fueling speculation that the state-controlled oil giant could sell shares at a better valuation than its underwhelming 2019 initial public offering.

Still, MbS’s leverage has limits. His “Vision 2030” ambitions to diversify the country away from oil depend on inflows of Western capital and labor. Executives from his planned mega-city of Neom are due to meet bankers and investors in New York next month, Bloomberg reported. The crown prince could decide to distance Saudi from the United States, stay neutral on Russia and cozy up to China instead. But it’s more likely that he will teach Biden a lesson, before pumping more oil.

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(The authors are Reuters Breakingviews columnists. The opinions expressed are their own.)

CONTEXT NEWS

- The White House has tried unsuccessfully to set up phone calls between U.S. President Joe Biden and Mohammed bin Salman, Saudi Arabia’s de facto leader, the Wall Street Journal reported on March 8. The crown prince did speak to Russian President Vladimir Putin, the WSJ reported.

- The United Arab Emirates will not act on its own to raise oil output, a UAE source familiar with the matter told Reuters on March 10.

- The UAE’s ambassador to Washington, Yousef Al Otaiba, had said in a statement the embassy posted on Twitter on March 9 that Abu Dhabi favoured an increase in oil production and would encourage the Organization of the Petroleum Exporting Countries to consider higher output. But in a later statement, Energy Minister Suhail al-Mazrouei said the country believed in the value OPEC+, which includes other producers like Russia, brought to the market.

- Global oil prices fell 13% on March 9 after Al Otaiba’s comments. As of 0915 GMT on March 10, Brent crude oil was trading at $116 a barrel, up 4%.

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