Will the House of Saud pivot to China?

Losing my (petrodollar) religion

By Pepe Escobar 

The favorite geopolitical sport du jour is to deconstruct the reasons why the House of Saud - that marriage of hyper-absolute monarchy and Wahhabi fanatics - has gone completely bonkers, with the ineffable Bandar Bush in the frontline. 

They are terrified with the possibility that the 34-year Wall of Mistrust between Washington and Tehran finally tumbles down. They are terrified that those American infidels refused to fight "our" regime change war on Syria. They were horrified by (mild) criticism about hardcore repression in Bahrain (which was invaded by Saudi in 2011, by the way). They abhor the American worshipping of that weird deity - democracy - that allowed friendly tyrants in Tunisia and Egypt to be abandoned (Libya is different; King Abdullah had wanted Gaddafi snuffed since at least 2002). 

The House of Saud is so mad as hell at the Obama administration that even "all options" are supposed to be "on the table". Which begs the question; what if Riyadh is actually dreaming of pivoting to China? 

Beijing's self-described "socialism with market characteristics" badly needs Saudi oil; after all the House of Saud is already China's top supplier. King Abdullah looks East and what he sees is an aspiring superpower, flush with unlimited cash, which will never dream of interfering in Saudi internal affairs, not to mention contemplate toxic Arab Spring ideas. 

So picture the dying King Abdullah dreaming of a Riyadh-Beijing axis as his legacy - with the inbuilt added benefit of displacing mortal enemy Iran as a supreme matter of national security for the Chinese (although Beijing would certainly see it as the proverbial win-win situation, keen to buy even more oil from Saudi as it keeps buying more gas from Iran). 

Saudi Arabia produces roughly 10% of the global total, which stands at around 90 million barrels of oil a day. It is the world's top exporter, swing producer, and essential in influencing the price of oil - which remains very high not only because of Chinese and Indian demand but also due to ceaseless speculation. 

Riyadh is carefully observing the possibility of the US becoming energy self-sufficient because of fracking technology - dirty, nasty and causing devastating pollution. They are certainly factoring that even with the US producing http://www.allgov.com/news/top-stories/us-now-leads-the-world-in-oil-and-gas-production-131008?news=851336 more than Saudi - around 12 million barrels a day, including ethanol - it still needs to import no less than 6.7 million barrels of oil a day in 2013. The US will still need oil - Saudi oil - in the foreseeable future. 

If "all options" are really "on the table", the House of Saud may be mulling striking a decades-long deal with the energy-voracious Chinese, assuring supply for a certain price. But let's assume demand - especially from Asia - rises, as it will; the House of Saud knows the US may find itself in trouble, and graphically manifest its displeasure. 

The House of Saud also knows very well it is the solid anchor that keeps OPEC tied to the petrodollar system. Without Saudi Arabia the petrodollar is history. 

That's arguably the number one scam in international relations. Virtually everyone and his neighbor needs US dollars which are mostly invested in US Treasury bills and other securities and mostly used to buy US dollar-denominated commodities like oil. How sweet it is to be bought by you; Washington keeps running up untold trillions of US dollars of debt that everyone must buy. The House of Saud of course duly invests its cascades of US dollars in US debt. Now imagine the House of Saud deciding to ditch the petrodollar. That would be Apocalypse Now for the US economy. 

Slowly but surely times are changing. Iran under those declaration of war-style sanctions is pointing the way, selling energy in other currencies, accepting gold and even bartering (the House of Saud, by the way, is also terrified that with a US-Iran d?tente, there will be a lot more Iranian oil and gas on Western markets, thus diluting Saudi profits.) 

Russia is now the number one global oil exporter, and China is the number one global oil importer - importing more from Saudi Arabia than the US. By 2020 China will be importing a whopping 9.2 million barrels of oil a day. So it obviously makes no sense for BRICS members Russia and China to keep using the petrodollar; that's a crucial feature of Beijing's recent call to "de-Americanize" the world. And Riyadh knows it. 

The House of Saud also considers two other trends; it has been exporting most of its oil to Asia for years now; and China, inevitably, has become the top exporter - myriad manufactured products - to Saudi Arabia, ahead of the US. Beijing, once again, is playing a discreet, long game, investing in Saudi infrastructure. Aware that Saudi Arabia cannot export more of its heavy, high sulfur oil - because few customers can refine it - China is buildinga massive new refining/export complex. So, long-term, what we have is essentially a US-China confrontation (with Russia and Iran also weighing in) over the petrodollar.

The House of Saud utmost priority - whatever happens - is self-perpetuation. Then to keeping earning loads of cash - petrodollar or otherwise. And then to keep mortal enemy Iran - those "apostate Shi'ites" - in check. 

But would that warrant a pivoting to China? 

The mob protection racket is so sweet; because of the petrodollar religion, the House of Saud is essentially self-perpetuated by the Pentagon umbrella and those tons of weapons contracts. 

But now House of Saud paranoia is developing on two fronts like a deadly virus. They are terrified the protection racket will not last if Iran is back in the game - worse, they imagine, with a nuclear breakout capability. 

And they suspect that the much-vaunted - and so far inexistent - US pivoting to Asia is a not so discreet "say goodbye to your new friend", as in Saudi Arabia's preferred partner China. The pivoting could even be interpreted by a paranoid House of Saud as a double threat; directed towards China in the long term but also against Saudi Arabia, as in "don't even think about moving to the petroyuan." 

So far, a House of Saud devoured by a vicious succession battle, as well as angry, fearful and paralyzed by fast evolving geopolitics, offers no evidence it would let escape the mongrel "special relationship" with the US. It's just throwing a fit. If, and when, it switches to losing my (petrodollar) religion mode, then the real action begins.