The Deal That Keeps the Oil Flowing
Weatherhead Fellow and former engineering economist for Saudi Aramco Jenny Spalding addresses the evolution of the US-Saudi oil-for-security bargain and its effect on global energy security.   by Jenny Spalding
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Weatherhead Fellow and former engineering economist for Saudi Aramco Jenny Spalding addresses the evolution of the US-Saudi oil-for-security bargain and its effect on global energy security.

by Jenny Spalding

The bargain has been in play since 1945: Saudi Arabia promises a reliable supply of oil to the US in exchange for US security against great powers and regional ones. Today, this eighty-year pact is being tested.

Recent events have raised questions on the part of the Saudis concerning the reliability of the United States, and vice versa. National and global trends call into question the pragmatism of the bargain in light of a world order that is becoming increasingly multipolar. More critically, the once-reliable lines of communication between the two countries have become strained, as historic back channels have diminished due to issues of trust. Tensions between these long-time allies come at a time when the oil market is in a tight situation, as the expectation that the world would rapidly shift to sustainable energy sources has turned out to be too optimistic in the interim. In fact, according to the International Energy Agency, for the next 20–30 years, the world is going to need more of Saudi Arabia’s oil, not less—and the US is no exception.

How the Bargain Works, and When It Doesn’t

The oil-for-security bargain was formally sealed in February 1945, in a meeting between President Roosevelt and King AbdulAziz bin Saud. Coming out of World War II, the US was in need of more energy supplies, and faced increasing international competition for Saudi oil. At the same time, Saudi Arabia was entering a new global order and sought protection for its resources. A pact was made that has endured for almost eighty years.

During the 1980s, the US developed the Carter Doctrine, which stated that the US would use force to protect “American” interests in the Middle East, and it did. During the Iran-Iraq war, US military presence kept open the Straits of Hormuz—a strategic choke point connecting the Persian Gulf to the Indian Ocean—and that promise has continued to this day. The height of the Carter Doctrine was the 1991 Gulf war, when US troops defended Saudi oil fields and Saudi Arabia provided funds and fuel.

Similarly, in 2002 when al Qaeda came to the Arabian Peninsula, the US provided FBI and other assistance to harden Aramco oil facilities and trained Saudis in counterterrorism. The US again provided security assistance after the 2012 Iranian cyber attack of the Saudi oil facilities.

However, 2019 saw a major deviation from the security policy. That year twenty-five Iranian drones and cruise missiles attacked the Abqaiq oil plants and the Khurais oil field, shutting down 5.7 million barrels or 5 percent of world crude and 50 percent of Saudi Aramco production. Although the attack on Saudi oil-producing and processing facilities was identified as Iranian from the debris, it was met with no significant US military response. President Trump stopped short of accusing Iran directly because the administration decided that a significant military response could profoundly destabilize the global oil system. Instead a very modest number of troops and equipment were dispatched to Saudi Arabia.

The failure of the US to significantly respond—after nearly eighty years of military support—deeply shook Saudi trust. Furthermore, the Saudis have subsequently built an internal narrative that the US is unreliable; seeing it as responsible for destabilizing the region with the war in Iraq, the failure to intervene in Syria, and support for the removal of Egypt’s Mubarak during the Arab Spring. Today, as the US redirects its military resources toward Russia and China, the Saudis wonder if the US will have the capacity or the willingness to respond to a threat in their region.

Frayed Trust in the Saudis

Meanwhile US concern about the reliability of new Saudi leadership has led to growing distrust. The US is uncomfortable with Saudi Arabia’s decision to normalize relations with Iran, a commitment that was formalized in a peace deal brokered by China in March 2023. China is Saudi’s largest trading partner and the Saudi diplomatic and trade movement toward China has been worrisome to the US. In a recent announcement, the Kingdom will be joining the Shanghai Cooperation Organization, thus forging a stronger strategic cooperation in the region where the US used to be the dominant security presence.

In addition, the US must accept that Saudi Arabia won’t condemn Russia’s invasion of Ukraine because Russia is a member of OPEC+ (the Organisation of the Petroleum Exporting Countries Plus), and together with other OPEC members, Saudi Arabia controls the oil market and can keep prices relatively high. High prices, of course, fuel Russia’s war machine, in direct opposition to the US effort to equip Ukraine.

High oil prices have hit President Biden’s popularity at home. The strain in the Saudi relationship was evident last summer when he asked for more oil from Gulf leaders. Crown Prince Mohammed bin Salman and Mohammed bin Zayed, president of the UAE, refused his calls, a snub that prompted Biden to visit the Gulf states where he extracted a lukewarm promise to increase oil production. That agreement was followed up a few months later by an OPEC decision to decrease oil production to prop up sagging oil prices once again.

Since being in office, Biden has followed through on the drawdown of US military presence in the Middle East, called out Mohammed bin Salman for the murder of journalist Jamal Khashoggi, and resisted giving Saudi Arabia certain weapons for its war in Yemen, among other actions that discomfit the Saudis.

The Biden administration shouldn’t take all the blame for putting the bargain on shaky ground, however, as the US seems to have also violated the bargain in the past.

Why Oil Is Not Going Away

Despite the global momentum for cleaner energy, the US and other countries will be dependent on oil for decades, until the transition is complete. Currently the US gets 7 percent of imports from Saudi Arabia and 15 percent from OPEC. Although the International Energy Agency projects that by 2050 the global energy mix will shift to favor low-carbon fuel, the reality is more nuanced. While coal usage is projected to plummet, natural gas and electricity usage will increase, with oil staying relatively the same at about one third of global energy needs. The reason for oil’s demand stability is its special niche in transportation due to its portability and because oil has the highest heat content per BTU of any energy source. As a result, over 80 percent of today’s world transportation uses petroleum products. The bulk of Aramco crude (>70 percent) goes into transport fuels while the remaining crude goes into petrochemicals and industrial feedstock for everything from plastics to fertilizers, pharmaceuticals, and textiles.

While oil is only 32 percent of the total global energy market, most of this demand is in the transportation sector, which is the single largest source of demand increases—especially in developing countries like China and India where the number of vehicles is growing rapidly. Global energy consumption will continue to shift proportionally to developing economies over the next thirty years, where population and economic growth are faster than the global average.

Why Saudi Oil Is Unique

To put Saudi Arabia’s oil assets into a global perspective, it owns about 20–25 percent of all the world’s oil reserves while producing about 10–15 percent of the world's daily oil consumption. Saudi Aramco and its other National Oil Companies (such as Sinopec or Petrobras) currently control 55 percent of global oil production. By contrast, Russia acts as an International Oil Company (IOC) such as Shell, by maximizing revenues today without concern about future generations.

Saudi oil and gas reserves span more than ninety oil and gas fields across an area of about 1.5 million square kilometers. However, only seventeen of those fields are producing today, including two of the world’s largest fields. These oil wells are also free flowing due to natural reservoir pressure. While the average US oil well produces twenty-seven barrels a day with crude production having to be lifted to the surface, the average Saudi well produces 3,000 barrels of oil per day, with many wells capable of producing far more but which are produced at lower rates to maximize ultimate oil recovery for generations to come. As a result, the cost of Saudi oil production is about $4 a barrel while the US shale is around $35–45.

Of key importance to the US is that Saudi Arabia is the world’s top crude oil exporter with the greatest crude grade flexibility. These multiple crude grades and large volumes ensure global flexibility in gasoline, bunker and jet fuel, diesel and fuel oil, and petrochemical feedstock requirements.

Yet even more important to the US-Saudi oil-for-security bargain is that only Saudi Arabia has significant additional capacity available to rapidly balance global oil markets in case of geopolitical or catastrophic disruption. For example, when Colonel Gaddafi was overthrown in 2011 and 1.5 million barrels of oil per day of Libyan crude were unexpectedly removed from the world market, the price of oil skyrocketed, sparking global oil shortages and accompanying inflationary pressures. However, the immediate additional Aramco production of 1.5 million barrels a day—a volume that no other oil producer could replicate—replaced all missing crude from the global market, returned crude oil prices to prior levels, and stabilized global energy and financial markets.

Regional and National Trends Challenge the 80-Year Bargain

There are several emerging regional and national trends that stress the US-Saudi bargain today:

(1) Leadership Change

The first regional trend is the ‘Succession of Sons’ which highlights generational leadership change across the region, from Qatar and Oman in the 1990s to UAE, Kuwait, and Saudi Arabia today. This transition to the next generation has created new regional and national ambitions by disrupting the long-standing norms of rule by consensus among the senior ruling princes rather than through succession of the first born that was true of other ruling dynasties. The continuity of long-standing norms regulating ruling family dynamics across the Gulf States has recently been challenged by rising regional competition, populism, a new information environment, and an educated public. Prior norms of ruling family competition allowed rivalries to be managed within the ruling family; today that is difficult to maintain within an expanded information environment.

When King Salman became king in 2015, he named his son Prince Mohammed bin Salman (MBS) to be minister of defense. Two years later, MBS had pushed aside his older cousin Prince Mohammed bin Nayef to become Crown Prince. Today the thirty-seven-year-old Crown Prince is the de facto ruler of Saudi Arabia as he makes key decisions for his father King Salman—aged eighty-six—from defense to oil to foreign policy. The rise of Prince Mohammed bin Salman over more senior rivals (in one of the world’s last absolute monarchies) was a unique turning point in Saudi Arabia. MBS bypassed an entire generation of older cousins and uncles to become Crown Prince. This new consolidation of power is arguably a way for Saudi Arabia and other Gulf states to handle a more complex multipolar world by placing a premium on centralized power to maintain stability. While the rise of centralized power is not confined to Saudi Arabia, the rapid rise of MBS and his new autocratic style of leadership has the US questioning whether Saudi Arabia is still a reliable partner, especially after it touched off a conflict with Qatar, mounted a disastrous intervention in Yemen that has devolved into civil war, and supported the assassination of Jamal Khashoggi.

(2) Reforms and Ambitions Under Prince Mohammed bin Salman

And yet MBS is also a reformer in terms of social change as he reconciles Islam with modernity by championing women’s rights and curtailing the role of the religious authorities. These important and wide-ranging reforms are only on the Saudi Government’s terms, however, with social and political activism strongly discouraged.

At home, Saudi Arabia recently announced it is embarking on trillions of dollars’ worth of spending to transform the economy into a tourism hotspot, global logistics and business hub under a program called Vision 2030. Increasing crude prices will help accelerate domestic investment with money coming from the Public Investment Fund (PIF) which is directly funded by Aramco oil revenues and is one of the world’s largest sovereign wealth funds.

Vision 2030 is a bold Kingdom-wide plan to transform the local economy, reduce unemployment, and pivot the economy away from oil dependence. While the latest results of Vision 2030 have shown disappointing results, it has been very successful in improving women’s rights and mobility as well as reducing the control of the ulema, or religious authorities. Thus while Vision 2030 promotes a more diversified and freer society that loosens religious restrictions, under the Crown Prince’s rule, domestic dissent has been punished, with activists, writers, and businessmen detained by authorities.

The remaining goals of Vision 2030 that include massive building projects are dependent on oil prices remaining high for at least the next five years. There is a growing concern that the Crown Prince Mohammed bin Salman is determined to keep oil prices at the levels needed to advance Saudi-first national interests, even at the potential expense of US-Saudi security relations.

(3) Changing Lines of Communication

Another major national trend affecting US-Saudi relations is the loss of formal and informal back channels between US and Saudi Arabia. Formal back channels had previously flowed through the US ambassador to Saudi Arabia at the highest levels, since the US ambassador was traditionally the serving US president’s personal friend who acted as pipeline directly to the US president. This arrangement spanned the entire US-Saudi relationship until recently, and led to fewer misunderstandings while also being opaque—suiting both countries’ interests.

This arrangement changed under President Obama when Ambassador Joseph Westphal was selected, followed by other career diplomats. Currently a charge d’affaires—not an official representative of a head of state—functions as acting US ambassador to Saudi Arabia. This new arrangement negates the quiet backdoor conversations between prior administrations and the Saudi Government that used to both diffuse concerns and address immediate situations. For Aramco, charged with planning and delivering crude oil that supports the Kingdom’s development, it has become increasingly difficult to navigate the changing policies.

There is also a loss of informal back channels between US and Saudi Arabia because of significantly fewer US employees in Aramco; a much reduced role of US former Aramco partners (Exxon, Mobil, Texaco, Chevron) in Saudi oil field long-term technical development; and a more opportunistic rather than long-term collaborative role of US companies in Saudi Arabia. Nonetheless, Saudi students still study in US universities, and a refreshed Saudi scholarship program plans to send 70,000 students abroad to top-ranked universities by 2030. At the same time Saudi professionals train in the US, helping build relationships for the future.

Global Trends Affecting Saudi Arabia’s Oil Market

Finally, there are three equally important global trends affecting the US-Saudi oil for security bargain:

(1) Demand Shift

Global oil (and energy) demand has shifted to Asia, particularly for rapidly growing transport demand. Aramco has responded by shipping nearly 75 percent of its exports to Asia (China and India). Special deals once reserved for the US are now offered elsewhere.

(2) Military Drawdown

The second global trend is the ongoing US military resource drawdown in the region which reflects the current US pivot to address strategic needs (such as in Russia, China), which greatly concerns Saudi Arabia and other Gulf States dependent upon US security assets. For Saudi leadership, the US is now a much less reliable guarantor of its security, with the seminal moment for Aramco being the Iranian drone attack. In response, Saudi Aramco has been working to “decentralize” some of its network, and build out its contractor services beyond the US, while Saudi Arabia now looks beyond the US for strategic cooperation.

(3) Green Energy

Finally, the third global trend to combat climate change is incentivizing companies and governments to either reduce fossil fuels or substitute with alternative forms of energy. The problem is the interim. The transition from hydrocarbons will require new technology, capital investment, and global political support for change. The International Energy Agency (IEA) expects crude oil demand to increase for another decade as large developing countries like India and China’s demand for oil (for transport) is growing rapidly. How does the world handle the transition for countries still developing rapidly? IEA’s oil projections through 2050 based on UN climate change scenarios show that oil demand will continue to grow steadily through 2030, only falling by 2050 in all UN scenarios.

These IEA climate change scenarios support the reality that only Saudi Arabia will have the ability to respond to any future calls to replace depleted global oil production during the transition to cleaner energy. Since avoiding an economic recession caused by high energy costs is critical to enabling energy transition and economic growth, this short- to mid-term additional oil production should help maintain affordable prices for development while the world transitions to clean energy.

The Future of US-Saudi Relations

It appears that Saudi Arabia and the US have lost the ability to communicate the trust that is critical for a continued stable and reliable relationship. The burden of stabilizing this relationship is a shared responsibility where both parties must actively collaborate to the benefit of the global energy, security, and development demands.

Although military cooperation continues between the US and Saudi Arabia despite the United States feeling justified in its recent actions, the Saudis are concerned that the US is not committed to Saudi security. For the Saudis, security is the core concern, especially at a time when they are undergoing socioeconomic change with challenging reforms. This relationship is even more critical now in a time of increasing demand, unchanged oil supplies from most non-OPEC oil producers who have high consumption and limited capacity to export, and recent oil supply cuts from selected OPEC+ countries. The resulting reduction of supply could fail to keep pace with greater Chinese oil demand, leading to a surge in oil prices and escalating global inflationary pressures.

As the US reconfigures security arrangements due to new geostrategic priorities in Ukraine and China, it is also time to work with Riyadh, Saudi Arabia’s capital city, to ensure enhanced and viable US security involvement. External protection by the US remains a strategically fundamental part of the oil-for-security bargain, a core concern for the Saudis—and a major factor in regional stability.

Contributor Bio

Weatherhead Scholars Program Fellow Jenny B. Spalding is recently retired from a thirty-seven-year career with Saudi Aramco forecasting production, reserves, corporate planning, and oil field development. Previously she was an environmental economist with the World Bank where she coordinated an environmental program for the Mediterranean.

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