February 2, 2015
By Stephen Gowans
The idea that market share concerns are behind Saudi Arabia’s refusal to use supply management to prop up oil prices is challenged in an article in today’s New York Times.
According to the article, the Saudis “believe that there could be ancillary diplomatic benefits to the country’s current strategy of allowing oil prices to stay low — including a chance to negotiate an exit for Mr. Assad” by encouraging Russia to withdraw its support for the embattled Syrian president in return for the Saudis allowing the price of oil to rise.
Saudi Arabia can sway oil prices significantly by cutting back or increasing production. It is the leading player in OPEC, with a fifth of the world’s oil reserves.
The Saudis reportedly “told the United States that they think they have some leverage over Mr. Putin because of their ability to reduce the supply of oil and possibly drive up prices.”
What’s left unspoken, however, is that the leverage didn’t just happen by chance, but came about because the Saudis have refused to exercise their sway, despite substantial harm to themselves.
As the article points out, “Saudi Arabia needs the price of oil to be over $100 a barrel to cover its federal spending, including a lavish budget for infrastructure projects. The current price is about $55 a barrel, and Saudi Arabia has projected a 2015 deficit of about $39 billion.”
Low oil prices mean the Saudis also have leverage over Iran and Venezuela, which, like Russia, are major oil-producers, and like Russia, are objects of enmity in Washington.
The New York Times also reported that former Al Qaeda operative, Zacarias Moussaoui, currently locked up in a US federal supermax prison, testified before a US District Court “that he was directed in 1998 or 1999 by Qaeda leaders in Afghanistan to create a digital database of donors to the group. Among those he said he recalled listing in the database” were three members of the Saudi royal family:
• Prince Turki al-Faisal, then the Saudi intelligence chief;
• Prince Bandar Bin Sultan, the longtime Saudi ambassador to the United States;
• Prince al-Waleed bin Talal, a prominent billionaire investor.
Saudi sources have long been credited with funding the violent fundamentalist Muslim group, but until now news reports have suggested that the funding has come from Saudi civil society, and not the state.
The Saudi royal family, has, throughout its history, been deeply involved in projects to advance British and US foreign policy goals, in return for arms, diplomatic support, and protection of the family’s power and privileges as unelected leaders of the country.
One service the Saudis have provided to the West has been to export Islamist extremism to counter nationalism and socialist and communist movements in the Arab and Muslim worlds.
Another service has been to use oil supply management to intervene in energy markets to facilitate US foreign policy objectives.
For example, The Wall Street Journal pointed out in December that, “During the 1980s, the Reagan administration credited the Saudis with maintaining high oil production to drive down prices and weaken the Soviet Union’s finances.” And “President Barack Obama ’s administration has worked closely with Saudi Arabia to try using energy markets to pressure Iran into constraining its nuclear program, according to U.S. and Saudi officials.”
The newspaper also reported that “U.S. and Arab officials have privately gushed” that the Saudi-assisted price decline is giving Washington greater leverage over Tehran, Moscow and Caracas.