US-Saudi Oil Alliance – History Repeats Itself and Not in the Positive Way – What’s Ahead?

  • The US Department of Energy is proposing a US-Saudi alliance pertaining to crude.
  • It is not in the best interest of the US long term.
  • The history of Aramco and Saudis gaining control already happened once.

The US Department of Energy is urging the administration of US President Donald Trump to form an alliance with Saudi Arabia in an attempt to regulate world oil prices, which could lead to Saudi Arabia withdrawing from OPEC. This information became available via The Wall Street Journal which claims that supporters of the US oil Alliance with Saudi Arabia are calling for stabilizing energy prices and preventing their collapse, which occurred after the OPEC talks in Vienna in early March.

The idea behind such a push is to strengthen ties between Saudi Arabia and the US. The US  Department of energy is considering several options for implementing this strategy. One of them provides for expanding the powers of the US government not in the sphere of regulating oil production in the United States (controlled by the private sector), but in terms of more active use of national hydrocarbon reserves. In any case, preparing the ground for an oil alliance with Saudi Arabia will require several months of strenuous work.

Furthermore, this push has not been approved by US administration thus far. The strategy available of such implementation is for the  US Department of Energy  provided with  expanded  powers of the US government, including the increased active use of national hydrocarbon reserves. In any case, preparing the ground for an oil Alliance with Saudi Arabia will require several months of strenuous efforts.

Jamal Khashoggi.

At this time, OPEC member countries control close to 30% of annual oil production and can bring down prices per barrel, but they can no longer create a deficit in the market and inflate prices. The Saudis have been involved in an oil war with Russia, ever since Russian President Vladimir Putin mentioned the idea of Russia leaving OPEC. It is highly plausible that Russia will create its own alternative to OPEC with BRICS nations.

The idea of strengthening relations with Saudi Arabia comes less than a year after Jamal Khashoggi, who was Washington Post journalist and spoke out against Saudi regime, was assassinated in the Saudi Embassy in Turkey. To theis day there have been no sanctions or reprimands against Saudi Arabia by the US. Also, women continue to suffer horrid inequality in Saudi Arabia.

Historic timeline:

  •  1933: The Standard Oil Company of California (Socal), against stiff competition from the Iraq Petroleum Company, concluded a concession agreement with the Kingdom of Saudi Arabia that permitted it to explore for, produce and export oil and oil products.
  • 1950: Saudi Arabia and Aramco agreed to a 50/50 profit-sharing arrangement.
  • 1951: Aramco found the first offshore oil field in the Middle East.
  • 1970s: Control gradually passed to the Saudi Arabian government, which eventually took over Aramco. This time frame is important. The logic behind this was financial gain and at the time former US President Carter betrayed the Shah of Iran in hopes of profitability. After this, Iran has always been a US adversary.
  • 1988: Aramco was renamed Saudi Aramco.
Shah of Iran.

Does this sound familiar in regard to the alliance being proposed now? It could be another historic repeat. It starts as a strategy for the greater good and economic enrichment and as a strategy to outplay Putin’s Russia in the crude market. However, fast forward and the US will suddenly again become symbiotically intertwined with the Saudis, eventually loosing more market share and empowering the Saudis, whose economy is not doing so well as we speak. Also their peak oil output production already passed.

If Carter hadn’t empowered the Saudis, Iran and Russia wouldn’t have gotten so close. Iran wouldn’t be the adversary to the US they are today and possibly wouldn’t be such a closed off nation and a nuclear threat. This new strategy would also allow the US to be in control of oil and dictate what to the Saudis what to do, not make them equal or even give them any type of bargaining control with the US. The trajectory is clear, if this proposal passes, it will have an adverse effect on the US in the near future.

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Christina Kitova

I spent most of my professional life in finance, insurance risk management litigation.

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