By Samantha Barnes, International Banker
The visual metaphors could not have been any clearer. Touching down in the Saudi Arabian capital city of Riyadh on December 7, China’s President Xi Jinping was given what can only be described as the “full red-carpet treatment”, a warm welcome that included an extravagant airshow, cannon fire and lavish reception hosted by Crown Prince Mohammed bin Salman himself. This fanfare stood in stark contrast with the rather muted greeting with which Xi Jinping’s US counterpart, President Joe Biden, was met upon his arrival earlier that year, in July, involving little more than a now-infamous fist bump with the Saudi crown prince. As such, it succinctly encapsulated the sharply deteriorating relationship the United States has to endure with not only Saudi Arabia but much of the Middle East.
Even a cursory assessment of recent events cannot deny that US influence in the Middle East is waning broadly, with tensions flaring up across geopolitical, economic, financial, diplomatic, military and even social issues in recent years. It should be mentioned, of course, that the long-term relationships the US has had with some countries in the region have seldom been anything other than fraught, such as those with Iran and Syria. With the US having pulled out of a landmark nuclear deal amid heightened tensions with the former and a brutal civil war raging for more than a decade in the latter that has seen US forces occupy roughly one-third of the country to this day, the hostilities of some members of the Middle East against the continued US presence remain undiminished.
But times are changing. In March, China brokered a historic peace agreement between the region’s two biggest powers, Saudi Arabia and Iran, which fast-tracked a crucial cessation of hostilities in Yemen between Saudi-led allies and Houthi rebels. Russia has played a similarly crucial role in restoring ties between Saudi Arabia and Syria, which has helped pave the way for Damascus’s return after 12 years to the important Arab League alliance of regional states. Such an unprecedented outbreak of peace across perhaps the most historically volatile and war-torn part of the world is now seemingly providing its constituents with a sense of hope and optimism rarely observed in recent years.
At the same time, these monumental events have done much to raise questions regarding the United States’ overall contributions to peace and stability—or lack thereof—in the region. March 20 marked the 20th anniversary of its invasion of Iraq, while the ensuing decade saw it wage similar regime-changing wars in Libya and Syria, all of which were at least partly carried out to purportedly promote democracy. But the integrity of its motivations is being no more firmly challenged than today, with a Gallup poll of residents of 13 Muslim-majority nations published on April 7 clearly showing that most “do not view the US as serious about encouraging the development of democracy in the region”.
Perhaps most notably, just 26 percent of Iraqis today believe that the US is serious about establishing democratic systems in the Middle East, while a hefty 72 percent doubt the US’ intentions. The poll’s respondents were similarly sceptical that the US would allow people in their region to fashion their own political futures.
Gallup’s earlier research also highlighted that a perceived lack of progress related to US foreign policy had been a major driver of negative perceptions of the US. “For example, negative views in Egypt were closely linked to a lack of progress on the issues many Egyptians said were most significant to improving their opinion of the US, including pulling out of Iraq, removing military bases from Saudi Arabia and supporting the rights of Muslims to elect their own governments,” Gallup stated upon publishing the latest poll. “Those sentiments continued to be expressed across the 13 populations polled in 2022. People in all countries were more likely to disagree than agree that the US will allow people in their region to fashion their own political future.”
Further evidence of the US’ waning Middle East influence can be found in the recent decisions taken by OPEC+ (Organization of the Petroleum Exporting Countries +) to cut crude-oil output dramatically, first by a mighty 2 million barrels per day (bpd) in October and then by 1.16 million bpd in early April. Given that the US had urged the group, comprising 13 Organization of the Petroleum Exporting Countries and an additional 10 major oil-producing nations, such as Russia and Mexico, to raise output to help it battle skyrocketing inflation and given that it is not only de facto led by Saudi Arabia but also includes others in the region that have made their own sizeable production cuts—such as Iraq, the United Arab Emirates (UAE) and Kuwait–the recent OPEC+ strategy has been widely perceived as a direct rebuke to the US amidst an environment of sharply deteriorating relations.
Indeed, the cuts even prompted US officials to level accusations at OPEC that it was siding with Russia and helping it counter economic sanctions by enabling higher oil revenues. “The President is disappointed by the shortsighted decision by OPEC+ to cut production quotas while the global economy is dealing with the continued negative impact of Putin’s invasion of Ukraine,” the White House said in response to the October cut.
Further evidence of this frayed relationship can be found in the No Oil Producing and Exporting Cartels Act (NOPEC), legislation that was reintroduced in the U.S. Congress in March, having been previously mulled following the October cuts but making little progress at the time. NOPEC would enable the US government to sue OPEC members for energy-market manipulation and antitrust violations and perhaps even facilitate the seizures of OPEC assets in US territory. “We’ve seen time and again how OPEC has colluded to set global oil prices, bringing uncertainty and high prices to consumers around the globe,” stated Senator Chuck Grassley (R-Iowa), who reintroduced the bill. “The oil cartel and its member countries need to know that we are committed to stopping their anti-competitive behavior.”
And US senators even went so far as to introduce a resolution in mid-March—shortly after the announcement of the China-brokered Saudi-Iran peace deal—that could require the Biden Administration to prepare a report on Saudi Arabia’s record on human rights. In turn, the report’s findings may lead to a reassessment of US security assistance to the Kingdom.
From a market perspective, some might be tempted to consider investing in domestic US oil companies that could potentially ramp up their production to replace the OPEC+ shortfall. But the signal from shale countries has been unequivocal: The cuts will not spur additional US oil and gas production. “There’s not a coordinated response that comes out of here,” Brendan McCracken, chief executive officer of Permian Basin producer Ovintiv, explained to Bloomberg following the early-April cut by OPEC+. “We’re now into several years of players like us running these businesses for returns and free cash flow, and that’s not going to change in the short term or the long term.”
Investors might also be increasingly wary of the threat that such geopolitical trends could pose to the US dollar, with speculation mounting that China’s increasing footprint in the Middle East could seriously erode the dominance commanded by the petrodollar. Change is “already afoot”, Credit Suisse economist and global head of short-term interest rate strategy, Zoltan Pozsar, explained in a January article for the Financial Times, observing that the ballooning current-account surpluses of China, Russia and Saudi Arabia are not as liberally recycled back into US Treasuries as was previously the case.
“Instead, we have seen more demand for gold (see China’s recent purchases), commodities (see Saudi Arabia’s planned investments in mining interests) and geopolitical investments such as funding the BRI [Belt and Road Initiative] and helping allies and neighbours in need, like Turkey, Egypt or Pakistan,” Pozsar added. “If less trade is invoiced in US dollars and there is a dwindling recycling of dollar surpluses into traditional reserve assets such as Treasuries, the ‘exorbitant privilege’ that the dollar holds as the international reserve currency could be under assault.”
Nonetheless, it seems the US is seemingly not quite ready to give up on the region yet. Both National Security Advisor Jake Sullivan and Secretary of State Antony Blinken recently confirmed their travel plans to Saudi Arabia, with the latter expected to visit in June for a meeting of the Global Coalition to Defeat ISIS. And the US can still point to staunch allies in the form of Israel, Kuwait, Jordan and the UAE. But with the region looking more towards the East to secure its economic and political futures, US influence is far from what it used to be.