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OPINION

US needs Saudi Arabia, and vice versa

By TYLER COWEN | Bloomberg Opinion | Published: October 23, 2018

Following the murder of Jamal Khashoggi, there have been many calls for re-examining the U.S.-Saudi relationship, even for imposing sanctions. As an economist, I understand there are diplomatic fine points to this relationship that lie beyond my expertise, but still: It is worth reviewing the economic and exchange-based reasons why U.S.-Saudi relations have been so robust.

First, trade between the U.S. and Saudi Arabia is currently about $24 billion per year. You might think that the U.S. is now energy-independent, but many U.S. allies, most notably Japan, rely on oil imports. Part of the larger U.S. foreign-policy stance is promising those allies freedom from major supply disruptions.

The Saudis typically have recycled their petrodollar surpluses, investing them in American enterprises. As for the other major regional powers: Turkey doesn’t have the oil, and Iran, with its much larger population, is more likely to invest surplus revenue at home (and furthermore is afraid of confiscation, given its longstanding pariah status). Whether you like it or not, the Saudis are America’s natural business ally.

The connections between the U.S. and Saudi Arabia run much deeper than the import-export ledger, however. One feature of the geography of Saudi Arabia is that its major oil fields stand apart and can be taken over without controlling the major Saudi cities. That is one reason why the Saudis were so wary of Saddam Hussein.

That risk means the Saudis are especially dependent on American military protection. In turn, the U.S. knows it has a lot of leverage over the Saudis, and therefore making deals with the Saudis involves easier enforcement and lower transaction costs. The same cannot be said of deals with Iran. So in the Saudi-Iran rivalry, the U.S. ends up siding with the Saudis.

Historically, Iran has been a very difficult country to capture or control, and the population has fought fiercely to defend Iranian territorial integrity. Iran doesn’t need American protection to the same degree as do the Saudis, and so Iran is more willing to be prickly or openly hostile to the U.S.

Iran shared a border with the former Soviet Union (though not Russia) and shares Caspian Sea rights with Russia, and the two countries often have had close and cordial relations. Iran also is easier than Saudi Arabia for China to reach with its One Belt, One Road initiative, which aims to build close ties with the countries to its west. In sum, Iran is going to diversify its geopolitical bets, which pulls it away from the U.S., even if the issues surrounding nuclear weapons and support for terrorism somehow were resolved.

When it comes to the Saudis, America has strongly encouraged the government to take what is effectively a fairly pro-Israel stance, including in security and military cooperation. There is no comparable deal to be had with the less dependent Iran or Turkey, and so this also leads to a relatively close relationship with the Saudis. Whether for reasons of geography, military power or economics, Israel and Saudi Arabia are America’s natural partners in the region.

The Saudis in the past (less so now) have been an oil swing producer, with the ability to lower the price and damage the financial prospects of President Vladimir Putin’s Russia. That too has kept the U.S. interested in good relations.

Of course, the Saudis have abused their position. They are dependent on the U.S., but they also know America has few other potential regional partners for cooperation on such a large scale. And so the Saudis have engaged in human-rights abuses over the decades, figuring it may harm but will not irrevocably damage relations with America.

Americans may now feel they have gone too far with the killing of Khashoggi, but America has been complicit in such a relationship for decades. The death penalty is used against Saudi political prisoners, and had been used against women found guilty of adultery. It’s a familiar pattern: The Saudis won’t do as much to respect human rights as Americans might like.

Still, America should now demand higher human-rights standards from the Saudis, as well as from other allies, and I rue the turn the Trump administration has taken in the opposite direction. But I cannot help but feel that too much of the discussion of Khashoggi is being used to skewer President Donald Trump and his hostility toward the media, rather than being set in a broader understanding of American history with the Saudis. There is too much rage and not enough analysis of why ties with the Saudis have proven so strong.

For better or worse, tolerating the killing of Khashoggi is the kind of foreign-policy decision that the U.S. has been making for many decades. Americans are now behaving like Captain Renault in the movie “Casablanca,” shocked to discover that there is gambling in the casino. And they will be shocked again when their protestations do not, in fact, set everything right.

Bloomberg Opinion columnist Tyler Cowen is a professor of economics at George Mason University. His books include “The Complacent Class: The Self-Defeating Quest for the American Dream.”

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