Why Saudi Just Abandoned Its Core Oil Rule

Authored by Simon Watkins via OilPrice,

Few could argue with U.S. President Donald Trump’s key objective in launching ‘Operation Epic Fury’ against Iran on February 28 – to prevent Iran from ever being able to develop a nuclear weapon. All members of his Cabinet fully backed this aim at the time, as they did the other three: to effect regime change, to critically degrade Iran’s ballistic missile capability, and to neutralize the ability of its proxies, especially Hamas and Hezbollah, to cause mayhem across the Middle East and the world. 

The degree to which these objectives have been achieved so far is a matter for debate, but what is not is that Washington’s closest Arab allies now harbor deep misgivings over America’s ability to shield them from the Iranian hornet’s nest that U.S. attacks have provoked. This has again made them more susceptible to the soothing assurances from Beijing that it can keep them safe from the terror of Tehran over the long term. This situation, in turn, threatens Trump’s ‘Abraham Accords’ plan that lay at the heart of his Middle East foreign policy, as fully examined in my latest book on the new global oil market order. Several recent moves by leading Middle East power Saudi Arabia underline this threat.

The most recent was the announcement from Saudi oil and gas flagship Aramco that it and the Kingdom are seeking to partner with other countries to expand their strategic oil stockpile. Despite the perennial taking up of its crude production capabilities to boost its global profile over the years, Saudi Arabia’s average oil output from 1973 to yesterday is 8.295 million barrels per day (bpd), and it is currently around 8 million bpd. That said, Saudi expects oil demand to bounce when the war ends and is also working on alternative export routes to circumvent the likely ongoing Iranian threat around the Strait of Hormuz, Bab al-Mandab Strait and Suez Canal. 

Perhaps the single-most strategically important component of this effort to reduce dependence on the Strait of Hormuz remains the long-planned but now dynamically expedited India – Middle East – Europe Economic Corridor (IMEC). Originally launched at the 2023 G20 Summit but stalled by regional conflict, the project has been turbocharged by the Strait of Hormuz blockade, with planners now estimating it could eventually divert around 60 percent of container traffic that historically has transited the Strait of Hormuz. Its architecture is built around two integrated corridors: an eastern maritime leg linking India’s western ports to the Arabian Gulf, and a northern overland rail network running through Saudi Arabia and Jordan to Israel’s Port of Haifa, from where short-sea shipping connects directly to Europe. 

Crucially, the 2026 wartime redesign anchors the eastern maritime leg in Oman rather than the UAE, allowing ships from India to unload entirely outside the Strait of Hormuz before transferring cargo onto the Arabian Peninsula rail grid. Additional ‘IMEC Plus’ nodes through Egypt and Syria are under discussion to create a wider lattice of land-based alternatives, while new legal frameworks – including the India – European Union (EU) free trade agreement and the U.S. Senate’s ‘Eastern Mediterranean Gateway Act’ – have formally designated Greece as Europe’s entry hub, a very senior source inside the EU’s security complex exclusively told OilPrice.com. Meanwhile, Saudi Arabia is eyeing the expansion of its East-West Pipeline (1,200 km long, moving crude from eastern oil fields across the Arabian Peninsula to the Red Sea port of Yanbu) to 10 million bpd within the next two to three years.

Saudi Arabia’s desire to partner with other countries to expand its strategic oil stockpile marks a seismic shift in policy. Historically, the Kingdom responded to oil demand spikes by simply pumping more crude from its domestic oilfields, drawing down from its own domestic storage, or securing barrels in the international spot and forward markets. However, this announcement signals that Saudi Arabia can no longer rely solely on its own geography and security to guarantee oil delivery. By seeking access to the strategic, government-owned stockpiles of foreign nations – particularly in Asia – Aramco wants to double its overseas storage capacity. That necessitates moving enormous volumes of Saudi oil out of the volatile Gulf region ahead of time and placing it directly into the backyards of its biggest customers.

In other words, the Saudis are saying that the physical infrastructure inside the Middle East is too exposed to rely on exclusively, and to ensure seamless supplies in the future, they are transitioning from a model of ‘we will get it when you need it’ to ‘we will store millions of barrels in your country so a local drone strike cannot trigger a global economic collapse.’ In fact, the first such deal was quickly struck by Saudi Arabia on October 26 to store crude oil at Singapore’s Jurong Rock Caverns from the second half of 2027. The caverns can store up to 1.47 million cubic metres of liquid hydrocarbons such as crude oil and condensate.

Whilst sensibly pragmatic on Saudi Arabia’s part, given recent events, this general strategy is disastrous for the U.S.’s image in the Middle East. In recent years, Saudi Arabia has consistently spent tens of billions of dollars annually on American-sourced defense systems, with historical and recent baseline arms agreements valued at roughly USD75 billion a year. While Riyadh has recently allocated roughly USD83 billion per year to its total national defense budget, the U.S. remains its primary provider, accounting for nearly 80 percent of all Saudi weapons imports. However, none of this has counted for much in the face of sustained attacks from Iran. Worse still was that back in September 2019, Iran had already signaled it had no qualms about authorizing its Yemen-based Houthi terrorist proxy to attack key Saudi Arabian oil targets, with drone and missile strikes against the Abqaiq and Khurais oil processing facilities. 

At the time, these two facilities represented around 50 percent of Saudi Arabia’s oil production, or about 5 percent of the global oil supply, so the attacks caused an immediate spike of up to 20 percent in global oil prices and were considered one of the most strategically significant energy-infrastructure strikes ever recorded. Riyadh consequently increased its investment in U.S. defense technology aimed at nullifying these threats, including Terminal High Altitude Area Defense (THAAD) interceptors, Patriot defences, and early-warning radars. Despite this, Iranian proxy forces in Iraq and the Tehran-backed Houthis launched repeated successful drone strikes targeting the East-West Pipeline. Meanwhile, waves of Houthi ballistic missiles and explosive drones struck deep inside the Saudi homeland, with the primary targets being vital energy nodes, including an Aramco facility and the major Rabigh refinery. A similar pattern manifested itself with other U.S. allies in the region. Having bought vast amounts of American defense equipment beforehand, Iranian strikes destroyed or disabled the AN/FPS-132 early-warning radar in Qatar, multiple AN/TPY-2 THAAD radars across the region, the AN/TPS-59 radar in Bahrain, and a string of MQ-9 Reapers. This exposed the uncomfortable truth that the U.S. could not adequately defend these states, either directly with its own forces or indirectly through the systems it had sold them.

A tell-tale sign of Saudi Arabia’s increasing lack of trust in being reliant on the U.S. for its security came in on August 7 when it announced the formation of the ‘Makkah Defense Alliance’, together with Turkey, and Pakistan. It is modeled around the core collective defense principle enshrined in NATO’s Article 5 – that is, that an armed attack on one member shall be considered an attack against them all. Saudi Arabia brings deep financing ability and a vast network of regional intelligence contacts to the grouping. Turkey – itself a member of NATO and tied into the U.S. and its key Western allies – has advanced military hardware, high-tech defense equipment, and a well-established production line for artillery and drones to the alliance. And Pakistan provides a huge frontline military and nuclear weapons. Pakistan’s Defense Minister Khawaja Asif stated that its ‘full military capabilities’ would be available under their defense agreements. Subsequently, it was clarified that the Alliance pact is strictly defensive and conventional – but it still has the weapons.

So far, the Alliance has not achieved much, and its future effectiveness looks uncertain at best. What is not uncertain is that China could stop any attacks on all these Arab states with a few words to Iran: such as, ‘stop doing all this, or we will immediately cease buying oil and gas from you, and will stop supplying you with critical materials, equipment, and expertise that you need to keep fighting the U.S. and its allies’. Up until recently, as analyzed in full in my latest book on the new global oil market order, Saudi Arabia, the UAE, and Iraq – among others – had all heavily leaned into Beijing’s sphere of global influence, and the situation looks ripe for the same to happen again.

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