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The Saudi prince, rebuked by the West, faces a dilemma over Russia and China

British Prime Minister Johnson visits Saudi Arabia and the United Arab Emirates
British Prime Minister Boris Johnson is greeted by Saudi Crown Prince Mohammed bin Salman as they arrive for a bilateral meeting at the royal court during a day-long visit to Saudi Arabia and the United Arab Emirates following the Russian invasion of Ukraine, , Saudi Arabia, April 16 March 2022. Stefan Rousseau/Pool via REUTERS

March 17, 2022

By Aziz El Yaakoubi, Maha El Dahan and Yousef Saba

RIYADH (Reuters) – The United States and Britain are increasing pressure on Saudi Arabia to pump more oil and join efforts to isolate Russia, while Riyadh has shown little willingness to respond and has revived threats to divest dollars from its to drop oil sales to China.

British Prime Minister Boris Johnson flew into the world’s largest crude oil exporter on Wednesday, a day after US National Security Advisor Brett McGurk arrived with a US delegation.

Saudi Arabia and its neighbor the United Arab Emirates, which are among only a handful of producers with spare capacity, have rebuffed Western calls for more crude to cool red-hot prices and have stuck to an OPEC+ supply pact with Russia and others.

Crown Prince Mohammed bin Salman, the kingdom’s de facto ruler, has faced harsh Western criticism over the 2018 killing of Saudi journalist Jamal Khashoggi, Riyadh’s human rights record and the Yemen war. US President Joe Biden has so far refused to negotiate directly with the prince, widely known as MbS.

With US-Saudi Arabia relations hitting rock bottom, MbS has responded by strengthening ties with Russia and China, though the kingdom still maintains close security ties with Washington.

McGurk and other US officials met with senior Saudi officials on Tuesday, urging them to pump more oil and find a political solution to end the war in Yemen, where Saudi-led forces are fighting the Iran-backed Houthi group , said two sources.

“You would be wrong if you think Washington would abandon these two files,” one of the two sources familiar with the discussions told Reuters.

A senior US government official said McGurk was in the Middle East “to discuss a wide range of issues, including Yemen,” but declined to elaborate.

The British Prime Minister, meanwhile, described Saudi Arabia and the UAE as “key international partners” in an effort to wean the world off Russian hydrocarbons and to pressure Russian President Vladimir Putin after Moscow invaded Ukraine.

But Abdulkhaleq Abdulla, a prominent political analyst in the Emirates, said Johnson shouldn’t expect much. “Boris will return empty-handed,” he wrote on Twitter.

The Saudi government did not immediately respond to a Reuters request for comment on the US and UK visits.

For now, Saudi Arabia has shown no signs that it will abandon an oil supply pact forged between the Organization of Petroleum Exporting Countries and allies, including Russia, where the group known as OPEC+ has only gradually increased oil production.

SHORT PROCESS

At the last OPEC+ meeting on March 2 — less than a week after Russia invaded Ukraine and as the West tightened sanctions against Moscow — ministers dodged talks on the Ukraine issue and quickly agreed to stick to the existing one sticking to politics.

Meanwhile, Riyadh has signaled it wants closer ties with Beijing by inviting Chinese President Xi Jinping to visit later this year. The Wall Street Journal said Saudi Arabia is in talks to price some of the crude oil it sells to China in yuan.

“If Saudi Arabia does that, it will change the dynamics of the currency market,” said a source with knowledge of the matter, adding that such a move – which the source said had long been requested by Beijing and with Riyadh back in 2018 threatened – could prompt other buyers to follow.

The Saudi Energy Ministry declined to comment, while state-owned oil giant Saudi Aramco declined to respond to a request for comment.

A diplomat said Riyadh is turning to “old threats” to push back the West, although the diplomat and others say any switch to the yuan would face practical challenges since crude oil is priced in dollars, the Saudi riyal to the greenback The yuan does not play the same role as a reserve currency.

“It would be reckless given global dollar oil prices and currency pegs, not to mention the size of Saudi dollar debt, their dollar reserve assets and their holdings in US stocks,” said Karen Young, a resident researcher at the American Enterprise Institutes.

“There may be some contracts in yuan between Saudi Arabia and China, but there is no rebalancing of Saudi monetary policy,” she said.

The Saudi central bank had assets worth $492.8 billion at the end of January, including $119 billion in US Treasuries.

The government had $101.1 billion in foreign currency debt – mostly in dollars – at the end of 2021, while the Saudi sovereign wealth fund held $56 billion in US stocks.

Monica Malik, chief economist at Abu Dhabi Commercial Bank, said Saudi Arabia could slowly switch some sales to yuan. “A gradual shift would have limited impact,” she said.

And even as US officials met in Riyadh, the US State Department said Tuesday that Washington is not asking its allies to choose between the United States and China.

(Reporting by Aziz El Yaakoubi in Riyadh, Maha El Dahan and Yousef Saba in Dubai; Additional reporting by Jonathan Landay in Washington; Editing by Edmund Blair)

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Bobby Allyn

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