'Mr. vice-president, we've been friends a long time,' said Saudi Arabia's King Abdullah, while welcoming Mr. Cheney to his kingdom. Mr. Cheney's visit is a follow up on President Bush's January visit to try and persuade OPEC nations to do more to stabilize world oil markets. Saudi Arabia is the oil cartel's largest producer and most influential member.The meetings were also attended by Saudi oil minister Ali al-Naimi. The outcome of the meetings has not been made public so far.
This is in sharp contrast to the January talks when Mr. Naimi had been quick to insist that the kingdom would boost production only if the market justified it. Meanwhile back home President Bush observed that high oil prices would also harm oil exporting countries in the long run.
There is every indication that US concerns are finally being taken seriously. The US economy has slowed very sharply.The GDP growth rate slumped to only 0.6% for the quarter ending December 2007 as against a healthy 3.8% for the September quarter, and indications are that the economy has slipped into recession. Commodity prices have soared as the dollar has slumped in value against all major currencies.It is this loss in dollar value that Bush was referring to in his interview.The major oil exporting countries have seen a sharp decline in the value of their surpluses , which have been invested in the US, as a result of dollar depreciation. Another country in a similar situation is China, because of its huge trade surplus with the US.The Chinese now appear to be sharing US concerns.The Chinese Central Bank announced a 50 basis point increase in the cash reserve ratio only hours before the Fed announced a rate cut.The move is expected to slow down the Chinese economy, reduce pressure on commodity prices, and help the dollar.
Faced with the prospect of a US recession, the Saudis also do not have any choice but to adopt a flexible attitude in the matter.