It’s the story that keeps making headlines this summer, despite its lack of apparent legs: The administration of US President Joe Biden is seeking a grand deal for Israeli-Saudi normalization, backed by an upgrade in US-Saudi relations to include US help on a civilian nuclear program, a formal security guarantee and Israeli concessions on the Palestinian issue — seen as key to any Saudi buy-in. The hurdles are undeniably high, starting with the most right-wing government in Israeli history, bent on expanding settlements and possibly annexing parts of the West Bank, where the Palestinian Authority is in disarray.
Zeroing in on the nuclear component of these latest talks, Saudi Arabia wants US help on a civilian nuclear program but on Saudi terms. That may mean Saudi autonomy over the entire nuclear fuel cycle, something the US has long resisted as a proliferation risk — and which Israel will also object to. Energy Intelligence understands that Washington remains resistant to any major concessions on a 123 agreement, which would involve Riyadh abstaining from enrichment or reprocessing. Not to mention, the uphill battle of attaining Congressional approval to backslide nonproliferation standards. But that doesn’t mean Washington couldn’t make some concessions on nuclear export controls to support a South Korean newbuild project — over a Russian or Chinese newbuild project — in Saudi Arabia, assuming a determination in an intellectual property dispute favors US-based Westinghouse.
Newbuild Program
Washington reportedly wants Riyadh to distance itself from China, economically and militarily, particularly after Beijing brokered a major détente between Iran and Saudi Arabia earlier this year. This is the context surrounding Riyadh’s looming decision on the selection of a vendor — from China National Nuclear Corp., South Korea’s Korea Electric Power Co. (Kepco), Russia’s Rosatom and France’s EDF — for its first two power reactors. Sources close to the matter generally view EDF as an unlikely candidate given its own operational and financial headwinds, and Russia’s invasion of Ukraine is seen as a reason for Riyadh to distance itself from Moscow. But Beijing, with its robust domestic nuclear newbuild program, has made great strides in its diplomatic relationship with Saudi Arabia. South Korea, meanwhile, has Kepco’s nearly-complete Barakah APR1400 nuclear plant in the United Arab Emirates to showcase as a shining example of its export potential. But any export deal for APR1400 has still to contend with Westinghouse’s intellectual property (IP) dispute.
Since Westinghouse and its AP1000 offerings were last year excluded from Riyadh’s vendor list, Washington’s best effort to support a civilian nuclear program in Saudi Arabia may rest with a South Korean reactor bid. That is unless Riyadh — at this late stage in the vendor selection process — decides to bring Westinghouse back into the fold. Given the ongoing legal battle in which Westinghouse contends that Kepco’s reactors contain key Westinghouse-owned IP, Kepco APR1400 exports face US export controls. After failing to reach a settlement agreement earlier this year, Kepco and Westinghouse have reportedly shifted from litigation in the US District Court for the District of Columbia to arbitration at the International Chamber of Commerce (ICC) in Vienna. Energy Intelligence understands that a decision from the ICC is binding for both parties, meaning that a final resolution could be weeks or months away.
One former Westinghouse executive speaking about the ICC arbitration told Energy Intelligence that, “as each day passes, Westinghouse becomes weaker and weaker” and that the litigation has only eroded its relationship with the South Koreans following the relatively on-time and on-budget Barakah newbuild project. “The Koreans have been good partners,” the former executive said. And Westinghouse still stands to benefit from a Korean bid in Riyadh as a supplier.
The ICC decision could free up South Korea “to move forward with its reactor in a Saudi bid,” Partnership for Global Security President Ken Luongo told Energy Intelligence. Functionally, the ICC decision “could eliminate the need for [Westinghouse] to seek approval from the [US government] for the export because the reactor would be wholly Korean.” Not to mention, “Westinghouse could have its hands full in Poland and possibly the Czech Republic,” Luongo said. “So, playing a junior role in Saudi may be in their interest.”
But even if the ICC rules in favor of Westinghouse in the IP dispute, and in the event of a successful Kepco bid in Saudi Arabia, Washington might still be willing to “work around the worst of the export control impediments that remained and may not need a 123 agreement,” Luongo added. “This would result in Korean reactors in Saudi and a role for the US that is not at the center of that program but still involved.”
US-Saudi Reset?
The nuclear prospects are, however, shrouded in greater diplomatic challenges. From the Saudi point of view, its energy and economic links to Asia and China now run so deep that it will not want to choose between US and China, notes Kristian Coates Ulrichsen of Rice University’s Baker Institute. “They aren’t going to make that choice. They’ve made that very clear,” he says, including in positioning on the Ukraine war. Instead, in the new, more multipolar world, countries like Saudi Arabia will seek to maintain parallel relationships — with the US, Russia, China and others. Washington will struggle to dial that back.
For Washington, the thinking seems to be around how to reattach Saudi Arabia to the US-led order. But Israel’s inclusion is an imperative for the US, argues Hussein Ibish of the Arab Gulf States Institute in Washington. Saudi Arabia wants an Israeli offer that advances plans to create a Palestinian state, a solid security pact with the US and access to more advanced weaponry. “There really isn’t any a solid basis for a bilateral US-Saudi deal” that gives each side what they are looking for, he says, “unless it’s triangular.” The domestic political climate in the US means a deeper security guarantee for Saudi Arabia has to be “tethered to normalization with Israel.” Bringing Israel into the equation would make it harder for Congress and voters to object to a deeper US-Saudi security relationship.
Although aligning US, Israeli and Saudi interests appears to be an uphill battle, multiple visits by high-level US officials to the kingdom in recent months attest to the seriousness of Washington’s aspiration.
Source: Energy Intelligence
