US-Saudi relations remain strong despite oil tensions: BMI

Relations between Saudi Arabia and the United States are expected to remain robust, despite recent tensions over oil policy, BMI Research said in a note on Tuesday.

US President Donald Trump has become increasingly critical in recent weeks of Saudi Arabia and OPEC, accusing the producer group of keeping prices artificially inflated by limiting output.

Trump has over the weeks tweeted about the need to reduce prices while also asking OPEC to do more to help ease the pressure on importers.

“These statements likely reflect Trump’s concern over the impact of rising gas prices on popular sentiment, especially during the high demand US summer driving season and in the run-up to the November midterm elections,” the report said.

The American leader’s comments also mark a notable shift in US rhetoric, which was warmer towards Middle Eastern allies like Saudi Arabia in the early days of the Trump administration.

That said, while US-Saudi relations may be somewhat cooler going forward, they are still expected to remain strong, analysts at BMI Research said.

Saudi oil output is likely to increase over coming months, amid concerns from major oil importers over high prices. According to media reports, the Kingdom is planning to pump about 10.8 million barrels per day (bpd) in July, surpassing the previous high of 10.72 million bpd in November 2016.

However, the country will not entirely use up spare capacity to boost output and ease oil prices, given that its excess capacity helps it sway the market.

“While we do not expect Riyadh to sacrifice all spare capacity, we are pricing in a significant number of Saudi barrels will enter the market over the coming months. This should put a cap on prices, therefore limiting some of Trump’s discontent over Saudi Arabia’s oil policy,” the report said.

Relations between Saudi Arabia and the US are crucial for both sides: the Kingdom relies on American military assistance for its security, while Riyadh plays a key role as a counter-terrorism partner for Washington.

Both governments also have economic interests in common, with US companies seeking to secure Saudi government contracts in light of the Kingdom’s economic diversification plans under Vision 2030.

“This underpins our view that beyond rhetoric, divergences over oil are unlikely to result in mounting tens ions between the two allies,” BMI Research said.

Nonetheless, the consultancy cautioned that is cannot entirely rule out the possibility of tensions escalating between the two sides.

“A tendency toward bombastic foreign policy rhetoric by President Donald Trump and diverging national interests could see relations between Saudi Arabia and the US sour somewhat, which would have important consequences for the region as a whole,” the report said.