Difficult times for an old alliance

http://www.telegraphindia.com/1160614/jsp/opinion/story_90986.jsp#.V1_Or-Z96t8

If Saudi Arabia's disenchantment with the US grows, emerging economies like India would benefit from capital inflows, writes Pinak Ranjan Chakravarty

Barack Obama with King Salman, April 2016

The author is a Distinguished Fellow at the Delhi-based Observer Research Foundation and has served as a diplomat in Saudi Arabia

The 75-year-old alliance between the United States of America and Saudi Arabia has been one of the most enduring, unique and, indeed, strange ties in modern international relations. No two countries are more different than Saudi Arabia and the US. One is an ultra-conservative Islamic monarchy controlled by a family oligarchy - the House of Saud - that applies the sharia as its legal code. The other is the largest democracy, the largest economy, and the most powerful country in the world. There is nothing in common between the world's largest democracy and the sharia-ruled authoritarian country. At the root of this alliance lay an important energy source - oil - ever since Standard Oil, the American oil company now known as Chevron, won the concession to explore for oil in 1933 and discovered vast oil fields in the eastern region of Saudi Arabia in 1938. Oil politics contributed to making these two countries strange bedfellows.

The Saudi-US alliance was based on the strategic understanding that Saudi Arabia would provide an inexhaustible supply of oil, the major energy source for a rapidly expanding post-Second World War economy, in return for the US ensuring the security of the former and the ruling House of Saud. This compact was made with Saudi Arabia's founder king, Abdulaziz Ibn Saud. Saudi Arabia derives its name from the name of this monarch whose extended family continues to rule the land that is the cradle of Islam. Abdulaziz was suspicious of the colonial powers, particularly of the United Kingdom, and preferred to ally with the US, which was the rising power in that era. Since then, Saudi Arabia has remained a staunch ally of the US in West Asia. Their leaderships have bonded closely via the oil industry, government contacts and contracts.

In the last few years, this alliance has frayed considerably, underlining once again the fact that nations have permanent interests but do not have permanent friends or enemies. Sermons on human rights delivered by US administrations, not excluding that of President Barack Obama, to India, one of the world's largest democracies, are a testimony to the indulgence of the US towards Saudi Arabia, the most egregious violator of human rights by any benchmark. This underscores starkly the fact that relations between nations remain a function of national interest and human rights, despite its universal appeal, continue to be a tool to pressurize a country in the pursuit of national interest. In India-US relations, it crops up occasionally as an irritant. In India's perception, it is an enduring symbol of American hypocrisy.

The surprising aspect of the Saudi-US alliance is that it managed to survive several shocks that would have destroyed any other relationship. This unique relationship began when the American company, Standard Oil, established the Arabian American Oil Company, Aramco, with three other partners that later became Texaco, Exxon and Mobil, giant American oil companies that continue to dominate the oil and gas industry to this day. Aramco made Saudi Arabia the largest exporter of oil in the world. As Saudi oil-generated wealth accumulated, it finally bought out the shares of the American companies by 1980 and converted the original company to Saudi Aramco while retaining partnerships with the American companies in downstream refining and petrochemical industries.

Saudi Arabia's oil reserves are the largest in the world. Its exports dominate global oil supplies, giving it significant influence on the energy market. Since the early 1970s, Saudi Arabia and the Organization of the Petroleum Exporting Countries (Opec) have tried to control oil markets by manipulating prices and setting supply constraints by functioning as a global cartel. Opec's actions, such as keeping prices high in the 1970s and in the run-up to the 2009 global recession, directly affected consumers all over the world. High oil prices put enormous wealth in the hands of the Saudi rulers, giving them the power to buy influence and promote their brand of Wahhabi Islam. Saudi Arabia has consciously promoted Islamic radicalism around the world, funding madrasas and mosques. Wahhabi teachings have become the principal cause of the turmoil and the religious extremism in the Islamic world and elsewhere among Muslim communities. This has palpably encouraged violence in the name of religion in moderate Islamic countries.

The primary goal of US foreign policy since the Second World War has been to provide security to the oil-rich countries of the Persian Gulf and ensure the free flow of oil for itself and the world economy. Before the nationalization of Aramco, US companies produced the bulk of the oil in the region. After Saudi nationalization of its oil industry, the Saudi-US partnership flowered during the Cold War. For the US, Iran under the Shah and Saudi Arabia were the two pillars of stabilizing the region. The overthrow of the Shah of Iran and the Islamic revolution in 1979 completely undermined one pillar of US policy and began an acrimonious phase in Iran-US relations, leaving Saudi Arabia as the principal ally of the US in the region for the past three decades.

Considering that the bedrock of this alliance was oil, the first shock was the oil embargo after the 1973 Arab-Israeli conflict. While this shock was absorbed, the second major shock was the September 11 terrorist attacks. Fifteen out of the 19 hijackers were Saudi nationals. This was the beginning of the decline of the alliance. It has taken 15 years for this alliance to fray and go into irreversible decline helped by the US's self-sufficiency in oil and gas as a result of new technologies such as 'fracking' that have boosted production of shale oil and gas on the American mainland. Saudi oil exports to the US declined by more than 50 per cent from April to December 2014, dropping to 788,000 barrels per day in January 2015 before rebounding to over a million barrels per day in June 2015. Oil prices crashed from a June 2014 peak of $110 per barrel to less than half in 2015 and less than $ 27 per barrel in early 2016. Some slow recovery has begun but it may not last, given the glut in oil supply in world markets.

The US's changing foreign policy priorities towards Iran and Cuba have sent an unambiguous message that old alliances and priorities can no longer be taken for granted. All these shifts have taken place under the Obama presidency. The Obama administration's 'pivot' or 'rebalance' to Asia is driven by the rise of China and shifting economic balance towards the emerging economies. The decaying alliance has spooked the new leadership of Saudi Arabia. For the first time, the grandsons of Abdulaziz are in positions of power in the Saudi government led by Salman bin Abdulaziz. Regional geopolitics has been transformed by the so-called Arab Spring political upheavals, the Iranian nuclear deal and the growing influence of Iran in the region. The Saudis are readjusting to this changing scenario. They have also been stung by the criticism of their policies by Obama in his famous interview to the April issue of The Atlantic magazine. Obama was critical in his references to Gulf Arab leaders and stated that they have failed to eliminate the threat of violent fundamentalism. Obama also said that these leaders have funnelled money and imams to undermine the syncretic traditions of Islam in countries like Indonesia. Obama seems to have decided that West Asia is no longer important for the US and that it has to move to the margins of the US's global policy

The result of all this is Saudi Arabia's decision to assert its own independent policy. The military intervention in Yemen's civil war marked a shift to a more militaristic posture in the region. The Obama administration has provided Saudi Arabia with arms and intelligence for the war in Yemen, but disagreements have continued to permeate bilateral ties. On regional security, Obama clearly believes that Saudi Arabia must share the region with Iran, even if it means a fragile peace. As anticipated, Saudi reaction to Obama's views has been harsh but not direct. The reaction has been articulated by Saudi commentators in the media who have described Obama's policies towards Iran and Syria as smacking of impotence against extremism promoted by Iran's sectarian approach.

In addition to the perception that Obama has let down the US's Arab allies, the Saudis have also been been worried by congressional moves to make public the classified 28 pages of the report by the congressional commission on the 9/11 terrorist attack. When declassified, it is believed that they will reveal the complicity of the members of the Saudi royal family and some in the Saudi government in the 9/11 conspiracy. The US Senate has also taken up the issue of a bill that will permit families of 9/11 victims to sue the Saudi government for providing support to terrorist organizations. Saudi Arabia fears that such moves could lead to the freezing of its assets in the US via court orders. This has triggered a warning from the Saudi foreign minister, who said that his country would sell its American assets worth over 750 billion dollars. This may well be an empty threat because in doing so the Saudis will destroy the value of their currency and cause a financial upheaval that will not leave them unscathed. The Obama administration has promised to lobby against the Senate bill and may veto it if it is passed. Nevertheless, this has become another issue that has soured the relations.

Despite these setbacks, Obama travelled to Riyadh recently to mend fences. The protocol conscious Saudis signalled their unhappiness by sending the governor of Riyadh to receive Obama at the airport even though King Salman was at the premises at a different location to receive fellow Arab leaders of the Gulf Cooperation Council. The visit to the kingdom by Narendra Modi was more proof of Saudi Arabia being the 'pivot' to Asia. If Saudi disenchantment with the US becomes more acute, then emerging economies like India will benefit from the petrodollar capital inflows as foreign direct investment for Modi's signature programmes like 'Make in India' at a time when low oil prices are forcing Saudi Arabia to restructure its economy. This restructuring could lead to loss of jobs among over 2.5 million Indian nationals employed in the kingdom. The Indian government would have to absorb those returning home and rehabilitate them with jobs that only a steadily expanding economy can create.

The Obama visit has salvaged the US's ties somewhat with Saudi Arabia and the other GCC countries with agreements for cooperation in counterterrorism, defence and cyberspace. Military exercises have been scheduled and Obama had to reassure the Arab leaders that Iran will not get a free pass and will remain under strict scrutiny for acts deemed to be destabilizing in the region. These assurances are unlikely to mollify Saudi Arabia, which will seek to retain its Sunni leadership in and Sunni domination of the Islamic world. Saudi desperation is evident as it reaches out to Israel, the Arab world's perennial bête noire, and also Turkey and Egypt for cooperation to contain Iran. The Saudi sponsorship of an 'Islamic Nato' is another manifestation of its desire to plough an independent furrow as it recalibrates its ties with the US. This geopolitical churning in West Asia is bound to have far-reaching repercussions in the region. The most significant transformation will be in Saudi-US relations. There is no going back to the comfort of old times