The Hamas attack on Israel that derailed Saudi Arabian Crown Prince Mohammad bin Salman’s principal diplomatic initiative — a three-way deal with the US and Israel — and scrambled the regional political landscape has left one thing unchanged: Riyadh’s influence over the global oil market.
For the past year, Saudi Arabia has cut production to boost prices, including a unilateral 10 percent reduction in output on top of OPEC-negotiated curbs. Although the market has relentlessly focused — wrongly — on perceived weakness in demand growth, the truth is Riyadh faced unexpected supply from countries under Western sanctions, notably Iran, but also Venezuela and Russia. Since October last year, Iran has boosted its production by as much as 700,000 barrels per day — the second-largest source of incremental oil supply this year, behind only US shale.
The reason? Washington turned a blind eye to rising smuggling of Iranian crude, mostly finding its way into China via Malaysia. The priority was an informal detente with Tehran, including a prisoner swap and bringing oil prices lower. Moreover, rising Iranian oil exports were an unacknowledged cost of easing the pain of another set of oil sanctions on Russia.
Iran has long supported Hamas financially and militarily — although its role in Saturday’s brutal attacks remains unclear. Yet it is difficult to see Washington maintaining its hands-off approach to Iran much longer. The Islamic Republic is not just supporting Hamas, but it is also providing weapons to Russia for its war against Ukraine. And the key to that support is oil revenue.
The extra barrels from weak sanctions enforcement translated into a huge windfall for Tehran; the cash can be used without any restrictions. According to my calculations, Iran is making about US$1.5 billion a month more at current oil prices than if its output remained capped at the level in October last year.
Over a year, that is about US$18 billion and makes the current debate in Washington about the US$6 billion of South Korean money transferred to a bank in Qatar for Iran to buy food and medicines look like a distraction. Which brings us to Prince Mohammad and the opening created if, as I think, Washington is forced to clamp down on Iranian oil exports. Under such a scenario, Riyadh could achieve two policy objectives that today look irreconcilable: boost production significantly and keep oil prices close to US$100 a barrel.
For now, the market — thanks to smuggled Iranian and Russian barrels, plus strong production growth from US shale, Brazil and elsewhere — does not need extra Saudi oil. Moreover. it is unlikely to need it for much of next year, leaving the Saudis facing a second year of relatively low output. Add worries about a US recession, and the Saudis would probably keep pumping their current 9 million barrels a day for months to come.
However, a crackdown on Iranian shipments would allow Saudi Arabia to pump more without sacrificing the other red line: high prices. Not only does Riyadh need the cash to finance its budget, but it sees US$100 a barrel now as reasonable, considering the rising cost of everything else.
The oil play, which would put the Saudi royal family again at the center of geopolitical power battles critical for the US and Europe, is not a given: It requires the US to face off Iran again, but in the run-up to the presidential elections next year, the White House might hold off unless evidence of Iranian involvement in the Hamas attacks is strong.
The mistrust between Washington and Riyadh about Iranian oil sanctions runs deep. The Saudis, for example, believe that former US president Donald Trump played them in 2018 when the White House convinced them to hike production ahead of the sanctions, only for Trump to weaken them at the last minute. My expectation is the Saudis would first want to see proof that the US is clamping down on Iranian shipments before they boost production, rather than the other way around.
For Riyadh, that only makes sense. But, US President Joe Biden would be, literally, over a Saudi barrel. For Prince Mohammad, it is a long way from the position he was in before Russian President Vladimir Putin invaded Ukraine last year, when he was a virtual pariah in the wake of the murder of journalist Jamal Khashoggi.
In the aftermath of Russia’s attack, the prince, coming in from the cold, was able to exploit global leaders’ worries about rising oil prices and surging inflation. He enjoyed a string of state visits, including a presidential fist-bump from Biden, who in 2019 promised to make him a “pariah,” and a summit with Chinese President Xi Jinping (習近平). The surge in energy prices created a windfall for Riyadh. While the rest of the world struggled, the Saudi economy expanded 8.7 percent last year, the fastest among the G20.
It was not an easy ride: The Saudis had to balance their oil alliance with Putin with the pressure from Washington to cut ties. What emerged was a “Saudi First” energy, economic and foreign-policy agenda, which puts the kingdom’s interest above everything.
Oil prices are for now little changed — up just 4 percent since Hamas’ attack that has killed 1,800 on both sides — indicating the energy market is hedging its bets about whether the conflict would engulf Iran. Still, the economic realities of Hamas’ atrocities mean Prince Mohammad can both reinforce his diplomatic sway and boost Saudi coffers. However, it does come with serious challenges.
The talks with the US and Israel, while normalizing relations with the Jewish state, would have yielded security guarantees from Washington and access to US civilian nuclear technology. It could be “the biggest historical deal since the end of the Cold War,” he told Fox News last month. And the opportunity for Riyadh to increase production at the expense of Iran requires Biden’s participation.
So even with the diplomatic setback — and the backlash that is sure to come from Saudi sympathies with the Palestinians — events have dealt Prince Mohammad’s oil economy its second winning hand in 18 months. On the first occasion, he grabbed the opportunity; and he is likely to do the same again.
Javier Blas is a Bloomberg Opinion columnist covering energy and commodities. He is coauthor of The World for Sale: Money, Power and the Traders Who Barter the Earth’s Resources. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
US President Donald Trump has gotten off to a head-spinning start in his foreign policy. He has pressured Denmark to cede Greenland to the United States, threatened to take over the Panama Canal, urged Canada to become the 51st US state, unilaterally renamed the Gulf of Mexico to “the Gulf of America” and announced plans for the United States to annex and administer Gaza. He has imposed and then suspended 25 percent tariffs on Canada and Mexico for their roles in the flow of fentanyl into the United States, while at the same time increasing tariffs on China by 10
With the manipulations of the Chinese Nationalist Party (KMT) and the Taiwan People’s Party (TPP), it is no surprise that this year’s budget plan would make government operations difficult. The KMT and the TPP passing malicious legislation in the past year has caused public ire to accumulate, with the pressure about to erupt like a volcano. Civic groups have successively backed recall petition drives and public consensus has reached a fever-pitch, with no let up during the long Lunar New Year holiday. The ire has even breached the mindsets of former staunch KMT and TPP supporters. Most Taiwanese have vowed to use
As an American living in Taiwan, I have to confess how impressed I have been over the years by the Chinese Communist Party’s wholehearted embrace of high-speed rail and electric vehicles, and this at a time when my own democratic country has chosen a leader openly committed to doing everything in his power to put obstacles in the way of sustainable energy across the board — and democracy to boot. It really does make me wonder: “Are those of us right who hold that democracy is the right way to go?” Has Taiwan made the wrong choice? Many in China obviously
About 6.1 million couples tied the knot last year, down from 7.28 million in 2023 — a drop of more than 20 percent, data from the Chinese Ministry of Civil Affairs showed. That is more serious than the precipitous drop of 12.2 percent in 2020, the first year of the COVID-19 pandemic. As the saying goes, a single leaf reveals an entire autumn. The decline in marriages reveals problems in China’s economic development, painting a dismal picture of the nation’s future. A giant question mark hangs over economic data that Beijing releases due to a lack of clarity, freedom of the press