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Saudi Arabia is set to remain one of the most influential players in global oil and energy markets. Understanding – and taking seriously – its evolving strategic calculus must therefore be a key task for policymakers in the UK and across Europe as they seek to safeguard their countries’ energy security.
Saudi Arabia is widely regarded as the world’s most important oil exporter. Through its own production and as the de facto leader of OPEC and OPEC+, Saudi Arabia can have more influence over international oil markets than most other producers – even countries that do not directly import Saudi oil are therefore affected by Saudi oil policy. In light of Russia’s full-scale invasion of Ukraine in February 2022, and as energy security has become a top priority for Western governments, the UK and others across Europe and beyond have turned to Saudi Arabia, calling for it to increase production in order to bring down global oil prices.
Oil revenues have historically fuelled Saudi Arabia’s social contract, and they are now the indispensable source of funding for the Kingdom’s Vision 2030 reform agenda. Although the Saudi Vision 2030 reform agenda ultimately aims at diversifying the Saudi economy, income from oil exports remains the all-important enabler of Saudi Arabia’s political and socioeconomic development in the absence of sufficient foreign direct investment.
This paper analyses Saudi Arabia’s oil policy and how it interacts with the Kingdom’s domestic and foreign and security policies. The following is a summary of the paper’s findings:
- Saudi Arabia’s central role in global oil markets is a key source of the Kingdom’s geopolitical power and importance (in addition to its status as the custodian of Islam’s holiest sites). Oil has shaped Saudi Arabia’s foreign relations. Most notably, it has facilitated its bilateral relation with the US. For most of the post-1945 era, Saudi Arabia–US relations have been encapsulated in an oil-for-security pact – Saudi Arabia sought to influence international oil markets in line with US interests, while the US provided the Kingdom with political, defence and security support.
- In recent years, Saudi Arabia has adopted a ‘Saudi First’ approach. This does not constitute a wholesale overhaul of Saudi oil policy and overall foreign political orientation, but rather reflects a reordering of the Kingdom’s strategic priorities that results in Saudi policies that are less directly aligned with US interests. The ‘Saudi First’ approach is driven by a focus on the Vision 2030 reform agenda; a perception that the US is less willing and able to guarantee the Kingdom’s security; an assessment that the US’s ‘shale revolution’ has made international oil markets more competitive and volatile; and a conclusion that global economic shifts, especially the emergence of China as the most important buyer of Saudi oil, necessitate the building of more extensive relations with non-Western powers.
- Saudi Arabia’s partnership with Russia, manifested in the two countries’ joint leadership of OPEC+, is best understood as a marriage of convenience. From Saudi Arabia’s perspective, OPEC+ increases its ability to influence international oil markets by extending OPEC’s coordination of production quotas to more producing countries. Riyadh opposes oil-related sanctions on Russia as destabilising interventions in the market. However, Saudi–Russian relations have been far from straightforward, and there is scope for future disagreements to emerge, including over competition for market share in Asia.
- Both climate change and climate action – specifically pressure for the decarbonisation of the global economy – constitute a major challenge for Saudi Arabia. In recent years, the Kingdom’s approach towards international climate action has shifted from mostly resisting decarbonisation efforts to trying to actively shape the international debate while still advocating for the continued importance of fossil fuels. This also includes beginning attempts to capitalise on potential opportunities in the global energy transition.
- Saudi Arabia is set to remain one of the most influential players in global oil and energy markets. Understanding – and taking seriously – its evolving strategic calculus must therefore be a key task for policymakers in the UK and across Europe as they seek to safeguard their countries’ energy security.
Dr Tobias Borck
Senior Associate Fellow