Democrat President Joe Biden’s decision to end support of the six-year-long Yemen war, and reassess American arms sales that began under his tenure as Vice President is surprisingly not what is making the headlines around the world this week. Jamal Khashoggi is a name that is familiar not just in journalistic circles but elsewhere too. Khashoggi was a Washington Post Saudi journalist who was killed in 2018 in Turkey. Following Khashoggi’s gruesome murder at the Saudi Embassy, fingers were instantly pointed at Saudi Arabia, and rather spectacularly on Mohammed Bin Salman, a.k.a, MBS. The Trump administration refused to publish a report linking MBS to the murder, despite the American legislature passing an act calling on intelligence services to provide evidence tying MBS to Khashoggi’s killing. However, matters are a bit different under the Democrat White House. Biden, who made it abundantly clear that his administration is not going to base their Middle East Policy on Saudi Arabia, unlike his predecessors, has finally called for the publication of the long blocked report in the public domain. What remains to be seen is how this is going to alter the relationship between the Americans and their strategically important partner in the Middle East.

Jamal Khashoggi had enjoyed a long and distinguished career in the Saudi Kingdom. He was known to have enjoyed close relations with the Royal family and often acted as an official spokesperson for them. . Khashoggi’s relationship with the ruling family and Saudi Arabia was redefined when King Salman’s son Mohammad Bin Salman started accumulating power and was soon made the Crown-Prince, set to inherit his father’s position. It is during this time Khashoggi distanced himself from the helm of power and became a critic of MBS and his policies often calling out the government and central political figures for imposing severe and autocratic policies. Despite his staunch stance, which fell well within the journalistic standards, no one foresaw what would befall Jamal Khashoggi. Khashoggi, having had come to terms with the threat looming over him, had relocated to the United States, in the form of a self-exile and had been a regular contributor to the Washington Post. Khashoggi in the summer of 2018 had travelled to Turkey in search of marital bliss. Tragically, before he could tie the knot, Jamal Khashoggi was reported missing from the Saudi embassy in Turkey and later pronounced dead.

Relations between the United States and Saudi Arabia were extremely warm under the Trump administration. However, the defining feature in this relationship wasn’t the two heads of state, rather the shots were called by Mohammad Bin Salman, and Trump’s son-in-law, Jared Kushner. The two young and like-minded individuals forged a close relationship in the second part of the decade, mainly due to their shared business mindset. In fact, Trump on Kushner’s urgings decided to make his first official overseas visit to Saudi Arabia. From the very onset of his Presidency, Trump cultivated a very close relationship with the Saudi Kingdom making it the fulcrum of his Middle-East policy, and viewing the country as an important ally against America’s long Middle East rival, the Islamic Republic of Iran. The relationship was further strengthened through the Trump Administration’s decision to increase arms sales to Saudi Arabia, whilst backing its campaign in the Yemen war.

Despite Trump and Kushner obviously viewing their Saudi counterparts as their bosom companions, it was still an utter shock to see Trump adopt an ambiguous stance towards the killing of Washington Post Journalist Jamal Khashoggi. Trumps’ decision to blatantly believe what the Crown-Prince had to say, shook the Congress and American Intelligence Services, as the CIA itself concluded with medium-high certainty that Mohammad Bin Salman was aware of and directly involved in the killing of Jamal Khashoggi.

In 2018, the United States Senate, unanimously passed Resolution 69, which recognised that the Government of the Kingdom of Saudi Arabia has, in recent years engaged in concerning behaviour, which includes its conduct in the civil war in Yemen, the apparent detention of the Prime Minister of Lebanon, suppression of dissent in the Kingdom and of course the killing of Jamal Khashoggi. The resolution explicitly recognises the misleading statements issued by the Saudi government, and that the fact the recent actions have undermined trust and confidence in the long-standing friendship between the United States and the Kingdom of Saudi Arabia. The following resolution having been passed unanimously proved that the United States Senate was ready to take up its role in shaping foreign policy which it had long abdicated in favour of the executive. Despite the directness and consensual adoption of the resolution, it fell short of having any effect on American foreign policy. Owing simply to the fact that the Trump Administration actively suppressed its publication and wrote a blank cheque to the Saudi Government.

The United States turned a new page under the Biden Administration, as it seeks to calibrate American ties with the Gulf country. From the inception of Biden’s bid for the Presidency, he has portrayed a hard stance against the Kingdom of Saudi Arabia. During his campaign trails, he has gone to the extent of calling the country a ‘pariah’ state. In the short time that he has been in office, he has already reduced arms sales to the country, and the report presented to the Congress a few days ago by the Biden-Harris Administration was the proverbial last nail in the coffin. However, it is still early to determine the exact ramifications the report will have on the American-Saudi relationship and more importantly on the Kingdom’s de facto ruler MBS himself. The Biden administration may seem to be on a war footing undeterred by policies followed by their predecessors, but they have been extremely strategic. Apart from the incessant repetition by the White House Press Office, that decision would be taken keeping in mind that current relationship the two states share, Joe Biden prior to releasing the report also spoke to King Salman, the current head of state. Another anomaly that we see, is a dearth of White House officials rushing to the press to give insights into what the publication of the report means for the Saudis.

In the past few years, it has been evident to lawmakers on Capitol Hill and the intelligence services that Mohammed Bin Salman, wasn’t the top choice to be the leader of America’s closest ally in the Middle East. However, America’s top choice, Muhammad bin Nayef Al Saud, who served as the interior minister and was responsible for successfully countering the Al-Qaeda in the Kingdom, now lives in Canada in exile. The release of the report has just provided ammunition to the gun lying uncocked with the US Congress. Since the report by the Biden-Harris administration, we have already seen the imposition of the ‘Khashoggi Ban’, which is a new VISA policy, that sets new restrictions pursuant to section 21(a)(3)(C) of the Immigration and Nationality Act. The largely unanswered question that remains is how the American officials aim to publicly cooperate with a man who they have held responsible for an act of such nature. A possible divorce driven by public sentiment, or even a temporary souring of relations between the two countries could be a blessing in disguise for the IS and Al-Qaeda. However, another international actor set to benefit is the Islamic Republic of Iran. Ramifications of Joe Biden’s decision to halt arms sales to the Saudis were evident when Iran-backed Houthis rebels were quick to capitalise on this and decided to advance on several fronts. However, in the near future, we need to consider the possibility that America’s decision to distance itself from Riyadh, could very well open doors for China, Russia and may even push the Saudi officials to develop closer ties with the Israelis.

The release of the report, along with growing opposition to the Yemen war and President Biden’s insistence on speaking with King Salman, instead of his son MBS, has heralded a new era in US-Saudi relations. An era that is marked with a host of strategic calculations on the part of the United States, that are aimed at keeping Saudi Arabia at an arm’s length, while being able to exploit its strong position in the Middle East. Like many other acts of geopolitical significance that are often ignored in the hope of a natural solution, I fear this is not applicable in this case. Khashoggi’s death has stirred up feelings against the Saudi Kingdom and the leadership which could very well be directed towards America if they fail to act decisively in the near future.

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The Company’s shares began trading on the Tadawul stock exchange on 11 December 2019. The shares rose to 35.2 riyals, giving it a $1.88 trillion market capitalization, and reached the $2 trillion mark on the second day of trading.

Global Positioning

Being a major supplier of oil globally, the company holds a special value in the global supply market. Hence, disruptions in the production process or any other hindrance impacts the global economy as a whole. Saudi Aramco has been attacked twice in the last decade. The 2012 cyber-attack involved several computer systems of the company being hacked. Yet again in 2019, another event took place.

Saudi pipelines, oil installations, and tankers had occasionally been attacked over the past two years, but analysts say what happened in eastern Saudi Arabia in the early hours of Saturday morning is a much larger escalation: a hit to the jugular of the kingdom’s oil industry. At 3.31 am and 3.42 am on Saturday, loud explosions erupted at Khurais oilfield and Abqaiq processing facility, both owned by Saudi Aramco, the country’s state-owned oil company, often described as the kingdom’s crown jewel. The explosions set off fires that took several hours to douse and appear to have caused significant damage. Saudi oil ministry sources said the production had been disrupted by about 5m barrels a day – nearly half the kingdom’s estimated output of 9.7m barrels and 5% of global production.

Economic Implication

Saudi Aramco lost on its a huge portion of crude oil supplies due to the attacks. Eventually, the supply side of the oil market’s demand-supply mechanism changed. With limited oil refining and other activities, the supply decreased keeping the demand the same or slightly increased. These actions led to a new equilibrium where the prices of oil surged with a rise in the stock prices. Eventually, the stocks became overvalued shaking the financial markets with the soaring high prices of oil. The price of a Brent oil rose to almost $72 (£58, up from $60 an oil) by 20 percent early on Monday. That’s a massive jump — the biggest step since the 1980s contract was established.

It then fell down to around $66 a barrel after Donald Trump vowed to unleash some of America’s oil reserves, to make up for Saudi Arabia’s deficit. That’s a two-month record, 10 percent more than Friday night.  Higher oil prices have the potential to pull global growth. It pushes up transportation costs and petroleum-based goods prices. That fuels inflation, leaving less disposable income for consumers.

With appropriate measures and repairs, the oil supply was brought back to normal.

Impact of COVID & Price War with Russia on Oil Prices

With the advent of COVID-19, Saudi Aramco has faced another challenge with profits plunging more than 50% than expected in the first and second quarters. To understand the impact, we again need to consider the demand and supply mechanism. The major demand for oil is from the transportation sectors, business closures, domestic and international travel that kept on declining due to lockdown. This immensely declined the demand, shifting it inwards. A sharp decline in domestic consumption and a possible decline in new investments, declines in tourism and business travel, the spillover of weaker demand to other sectors and economies through trade and production linkages, supply-side disruptions to production and trade, and shifts in healthcare expenditure are just some of the channels through which the pandemic affects the demand side in the market.

Responding to this, Saudi Arabia decided to reduce the supply of oil so as to keep the prices at a moderate level. The proposal was although refused by the Russian’s and what followed was a price war. Saudi Arabia entered a price war with Russia on 8 March 2020, encouraging a 65 percent quarterly decline in oil prices. In the first few weeks of March, US oil prices plummeted by 34 percent, crude oil dropped by 26 percent, and Brent oil dropped by 24 percent. In the aftermath of the COVID-19 pandemic, the price war was caused by a break-up in the dialogue between the (OPEC) and Russia over potential cutbacks in oil supply. Russia walked out of the agreement and the OPEC alliance collapsed. Oil prices had already declined by 30% due to the reduced demand, but with the price war, the result came out to be a global stock market crash.

Saudi Arabia and Russia agreed to slash oil supply in early April 2020, and again in June 2020. On April 20, the price became negative. It should be noted that oil production can be slowed down but not totally halted, and even the lowest possible level of production resulted in higher supply than demand; those holding oil futures became willing to pay to offload contracts for oil they expected to be unable to store.

Current Scenario and Investment Prospects

Lockdowns were lifted in some of the countries including Saudi Arabia in June along with a set of instructions to be considered and followed. Thus Saudi Aramco has seen considerable growth after the oil price crash and managed to earn considerable profits but less than expected. As a result, Saudi Aramco has been reviewing its plans to expand at home and abroad in the face of sharply low oil prices and a heavy dividend burden.

One of the projects that are likely to face the axe or the pause button from the oil major may be its proposed investment in a $44 billion mega refinery project at Ratnagiri in Maharashtra. It is a 50:50 partnership between state-run Indian oil companies and Aramco. It would either exit the investment or would review it again once the market improves, putting it at a halt for the time being. However, Sources said Aramco has already made its stance known on refinery investments in China and a Texas, USA factory. It is also slowing on its planned investments in Pakistan. In India too, the privatization proposal for state-owned refiner BPCL has been delayed by three times so far, in the absence of any firm investment pledge from Saudi Aramco and other investors.

However, it is still working on the $15 billion stakes in Reliance Industries Ltd.’s refining and chemicals business, although lower oil prices are forcing it to slash investment spending. A deal with Reliance would help Aramco join the ranks of top oil refiners and chemical manufacturers. Aramco is already a major crude supplier to India while Reliance sells petroleum products to the kingdom, including gasoline.  The Reliance transaction will help Aramco achieve its target of more than doubling its refining capacity to between 8 million and 10 million barrels per day; At the end of last year, the Saudi corporation had a refining capacity of 3.6 million barrels per day, including wholly-owned plants and joint venture holdings. The gross capacity of the facilities with stakes in Aramco was 6.4 million barrels per day.

State oil company Saudi Aramco has discovered two new oil and gas fields in the northern regions, the kingdom’s energy minister said on Sunday, state news agency SPA reported. The fields haven’t been pinpointed as of now but are already producing oil, condensates, and gas. The two new fields have the potential to contribute to its non-hydrocarbon oil. The Kingdom has been striving for the same as an important aspect of its diversification efforts. A lot of the oil provided by Aramco is used locally for power production, and the business — and the government — are trying to minimize this by replacing gas oil. Moreover, this would also ensure that oil is freed up for exports, leading to an even better dominance over other nations as well.

Conclusion

The Saudi Arabian Oil Company plays an integral part in the world economy as a major supplier and producer of petroleum and its products, natural gas, and crude oil. Amongst many other companies and even countries, Aramco seems to have stabilized quite well considering the aftermath of several incidents that completely changed the market scenario. Moreover, Saudi Arabia relies heavily on its oil and petroleum industries as they are a major source of their income. Hence, how Aramco performs reflects directly on the country’s economy.

Despite the concerns regarding the oil market, analysts predicted that Aramco was better prepared to weather market volatility, owing to its size and scale, its low production cost, and solid free cash flow generation in a weak oil price environment. This is good news for its investment plan for Asia.

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