World Economy

Why oil won't help Saudi Arabia cozy up to Trump

Andy Critchow
Saudi Arabia's energy minister Khalid al-Falih
Joe Klamar | AFP | Getty Images

Cozying up to President Donald Trump will require more than barrels of Saudi Arabian oil. The world's largest exporter of the black stuff wants to re-establish itself as America's most important ally in the Gulf. But it has less to offer in return for the political and military backup it has historically depended on. The U.S. government's focus on reducing foreign energy imports and developing vast shale oil resources have reduced Riyadh's usefulness.

Establishing good relations with the new president is a priority for Saudi Arabia. The kingdom's energy minister hinted how that may be done in an interview with the BBC on Feb. 1. Khalid al-Falih said Saudi Arabia may add to its billions of dollars of energy-related investments in the United States following the "pro-oil and gas policies of the Trump administration".

That's a remarkable change in tone. Riyadh was spooked by the Obama administration's eagerness to the lift international nuclear sanctions against Iran, its main regional rival. Washington's refusal to provide more support for Saudi Arabia in proxy conflicts in Syria and Yemen further soured relations. And Saudi officials protested last year when Congress passed a bill which could have allowed victims of the Sept. 11, 2001 attacks to sue for damages.

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Trump initially did not look any friendlier. His campaign promise to consider stopping imports of Saudi oil would be disastrous for the kingdom's finances if carried through. The former real estate mogul had also hinted that Saudi Arabia would have to pay for U.S. security guarantees, including America's large naval presence in the region.

Meanwhile, America's shale oil revolution has weakened the kingdom's negotiating position. Saudi oil exports to the United States have fallen by 24 percent over the last decade, while domestic production almost doubled over the same period.

Saudi Arabia's financial firepower could be more persuasive. The kingdom is in the process of establishing a $2 trillion sovereign wealth fund, which could boost American stocks, and support U.S. Treasuries. It's also an investor in a $100 billion fund with Japanese group SoftBank, which has promised to create thousands of U.S. jobs. Money may speak louder than oil for the kingdom when dealing with Trump.