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Saudi Arabia cuts oil sales to U.S., ups China

Saudi Arabia, long the largest supplier of oil to the United States, has cut U.S. sales dramatically and may soon no longer be among the top five largest U.S. suppliers.

The Saudi kingdom's new largest customer is China.

"Saudi sales to the U.S. have fallen off the table," James Placke, a senior associate at Cambridge Energy Research Associates and former U.S. deputy assistant secretary of state for Near Eastern Affairs, said Thursday.

Saudi oil sales to the United States peaked in 2002 at 1.7 million barrels per day but had fallen to 1.1 million barrels per day in May, the last month for which U.S. Department of Energy figures are available, Placke said at a Washington forum.

Placke, who has monitored Saudi oil sales for decades, said Saudi Arabia's traditional large share of the U.S. oil market has been a function of the country's special close relationship with the United States -- a tie that may be weakening.

"Saudi Arabia has been at the top for several decades, and that's by design. To the Saudi establishment, that position was an important element in maintaining what was known as the 'strategic relationship,'" Placke said. He said the Saudis used subtle methods that are no longer in place to lower the prices of their oil for U.S. customers and increase their market share in the United States.

Placke said Saudi Arabia's turn away from the U.S. market began at the end of 2002 as the United States was preparing to go to war in Iraq.

"I think, while there was what has generally been described as a sufficient degree of cooperation between Saudi Arabia and the United States, (the invasion of Iraq) clearly was not in tune with Saudi Arabia or really anyone else in the Arab world for that matter," Placke said.

"I think what we're seeing is not punishment or retribution, but I think it's a slow recognition by the Saudi side that the 'special relationship' isn't so special anymore," he added.

Thomas Lippman, an adjunct scholar and oil expert at the Middle East Institute in Washington, stressed that the reduction in Saudi oil sales to the United States does not threaten the supply of oil to the United States.

"It is absolutely true that oil has no nationality," Lippman said. "It's also true that the record shows that even states or state producers in countries with which we have terrible relations will continue to sell oil to us because they need the money. It was true in Libya, it was true in Iran."

Placke said Canada and Mexico -- which he said were almost tied for the largest U.S. supplier -- have picked up much of the slack left by Saudi Arabia's retreat, along with Nigeria.

"The only consequence of this is I think a political consequence," Placke said. "This may color how the two parties look at each other as we go down the road."

Gregory Gause, an associate professor of political science at the University of Vermont, said the details of Saudi oil sales are much less important than Saudi production capacity, which the country often uses to smooth jolts to world oil prices like the Sept. 11, 2001, terror attacks, the Iraq War or strikes in Venezuela.

"The Saudis have basically played the role of the central bank," Gause said. "We're at a point where there's precious little surplus capacity."

A large source of the reduction in the world's excess capacity has been China's burgeoning appetite for oil.

Placke said China recently surpassed Japan in its oil consumption and is currently the world's second-largest oil market behind the United States.

Lippman said, however, that building consumption might be only part of the reason Saudi Arabia is turning its attention to China.

"It seems to me that there is a certain logic for the Saudis in looking around and saying, well wait a minute, we need a good relationship with a country that is a permanent member of the (U.N.) Security Council, is a strong a growing market for our oil, is a nuclear power and, by the way, is untainted by having invaded any Arab countries," Lippman said.

Placke said he considers the Saudi shift "part of the rebalancing of relationships around the world after the Cold War." He said the beginnings of the drift between Saudi Arabia and the United States began with the loss of the common cause of opposing Soviet expansion.

"I can't quite stretch my imagination far enough to imagine Saudi Arabia and the Chinese having the kind of relationship that Saudi Arabia and the United States once had and no longer have," Placke added.

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