The Khashoggi case is far from over, as current harsh statements coming from Washington are showing.

Not only is there a long line of U.S. Senators calling for an in-depth investigation of the matter, some have even openly called for the removal of Saudi Crown Prince Mohammed bin. Senior R-Senator Lindsay Graham, one of the staunchest supporters of US president Trump and Saudi Arabia, has broken ranks as he asked on US Fox-News to remove MBS from his position.

These moves from Washington are not only endangering the very strong ties between Washington and Riyadh, but also endanger the overall Middle East and internal stability of OPEC. The oil cartel, led by Saudi Arabia, is looking at a very stormy ride the next couple of months, while the U.S. is heading for another showdown in the Arab world.

The Khashoggi case has become a possible watershed in international relations. Statements made by US R-Senator Graham, already supported by other high-ranking U.S. officials, show that the position of Saudi Arabia as a strategic ally of Washington in the Middle East, and MBS in particular, is under severe pressure.

The public threat, made by Graham news channel Fox-News, to put strong sanctions on Saudi Arabia, if the Crown Prince is not being removed, is a first. Not even in the case of Iran, Russia’s involvement in the Ukraine or the ongoing disaster in Syria, an open call was made for regime change. If threats were made by U.S. government-linked senators, it always was directly linked to a strong opposition movement in that country, or being directed at an anti-U.S. government or entity.

This time, the threat has been directed at a, until 2 weeks ago, strongly supported ally, with strong ties to Washington policymakers, the financial world and the defense industry. U..S. president Trump’s current statements on Saudi Arabia, the moves made by U.S. Secretary of State Pompeo and others, now seem to be very hollow. The Washington Administration looks like a lame duck, as its supporters in Congress and the NY financial world are calling for a strong and anti-Saudi reaction. Such as reactions, however, could have a more negative impact for the U.S. and Western interests than currently is being discussed. Related: Are U.S. Oil Exports Really Unstoppable?

The Khashoggi crisis comes at a pivotal moment in the energy markets and geopolitical arena. While the West tries to revamp its influence in the Middle East, they are being confronted by the re-emergence of Russian power and influence of China. At the same time, Washington is set to implement sanctions on Iran, possibly shaking global energy markets to its foundations. Strong support is needed from the Arab states. Washington’s approach is very diffuse, as it also threatens legal action against OPEC. The so-called ‘No Oil Producing and Exporting Cartels Act “or “NOPEC” legislation is threatening anti-trust lawsuits against the oil cartel. According to Reuters, OPEC has already stated to its members not to discuss oil price hikes, as it could result in legal action or another Washington – Riyadh clash. “We solemnly believe that market stability, and not prices, is the common objective of our actions,” UAE Energy Minister Suhail al-Mazroui, who holds the rotating OPEC presidency this year, wrote in the letter, seen by Reuters. In the same letter, Mazroui reiterated that “to refrain from any reference to prices in their commentary about our collective efforts or oil market condition”.

Ongoing pressure in Washington to put the law up for voting has caused bad blood in several OPEC capitals. Trump’s repeated calls on OPEC to increase production to lower prices also has not been taken lightly. The Khashoggi case could increase support in Washington to back the NOPEC bill. Saudi Arabia is extremely worried about the bill. “There is a major fear NOPEC could turn into another JASTA,” one of the sources familiar with Aramco IPO preparations said, referring to the Justice Against Sponsors of Terrorism Act which allows victims of the Sept. 11, 2001, attacks to sue Riyadh. At present, $1 trillion in Saudi investments in the U.S. could be at stake. If the NOPEC bill is signed into law, the move would revoke the sovereign immunity from U.S. legal action which oil producers, including OPEC members, currently enjoy.

In addition to U.S. interests in the region, Europe is being confronted by growing Russian and Chinese involvement in the Arab world, threatening in theory its economic and military interests too. Washington’s strong hand policies on Saudi Arabia could lead to a weakening of overall Western interests in the coming weeks. A call for the removal of MBS in Saudi Arabia is for sure going to be seen in the other Arab capitals as new Western (colonialist) betrayal of its friends in the UAE, Bahrain and Egypt. Western influence already has diminished after their support for change in Libya and Egypt. The current Western moves are seen by most in this light.

A possible shift in geopolitical alliances is imminent. The pressure from the West will entice or even force Saudi Arabia, and its allies, to reassess their future. As indicated before, Saudi Arabia has already opened up its doors to Russia. These ties were forged by a slump in oil prices and the need to strengthen the hold of the Kingdom and OPEC on the oil market. The success of the OPEC/Russia cooperation has become clear, but also has led to a discussion on security and investments. The historical orientation of the Arab world, especially Saudi Arabia, but also the UAE and Egypt, on the West has changed already dramatically, but will now take a giant leap further.

Economically Asia has taken over already, as immense investments made by oil companies such as Aramco and ADNOC in China, India and other Asian emerging markets show. Russia has taken its share too. Moscow’s real strength, however, next to oil-gas markets, is it willingness to back up its friends in time of need. A military alliance is on the table, looking at the current developments. The security of the Arab regimes is at stake, so choices will have to be made. A full-stop cooperation between Riyadh and Moscow, based on OPEC oil issues and security developments, is to be expected in the next months. The first signs will be seen in Riyadh next week at the FII2018. Related: Goldman Sachs: This Is The Next Big Risk For Oil

For the global oil markets this will be a game-changer. If Arab regimes need to get security and political support from Moscow, and Beijing, Western energy interests are at stake. A possible anti-cartel law as proposed in the U.S. will only add to this. The year 2018 could become the year of a new geopolitical oil market reality. Full cooperation between OPEC leader Saudi Arabia, supported by the UAE, and Russia will present Washington and Brussels with a new global energy market situation which they won’t be able to mitigate anymore.

Washington’s strive to change the oil market, which already was a fata morgana, could be ended before the first green sprout is showing. With the current antagonistic position taken by Washington’s elite, a clash is imminent with Saudi Arabia and others. The main OPEC leaders will keep to their current production strategy, not willing to open up their taps. A possible stronger move to keep volumes lower than expected is also in the offing, as Saudi Arabia is not forced to produce at current levels at all. A strong reaction is to be expected soon.

In addition to a smiling Putin, who is going to be the main beneficiary of the current crisis, the mullahs in Tehran will be enjoying their free lunch too. Without support of Saudi Arabia and others, U.S. sanctions on Iran could be an empty threat. Trump can forget full support from Saudi Arabia/MBS as long as the latter is under pressure. Iran could be one of the beneficiaries of the current clash. The regional power struggle between Riyadh and Tehran could be put aside when looking at a pure OPEC strategy. Consolidation of the current production agreement, without Saudi Arabia and Russia filling the void of Iran’s oil volumes, could be an outcome to be expected.

By Cyril Widdershoven for Oilprice.com

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