Saudis Use Leverage Over Oil Pricing To Tempt Russia To Withdraw Support For Syria

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.

3 thoughts on “Saudis Use Leverage Over Oil Pricing To Tempt Russia To Withdraw Support For Syria

  1. The fact is though, the oil price is an indiscriminate weapon, and what Saudi Arabia has done has hurt ALL oil producers, including itself and the US. The producers it has hurt most are those with the most expensive production costs, and that is most definitely NOT Russia and Iran, but the fracking industry in the US.

    Some ridiculous charts have been published by the western media that suggest that Iran’s cost of production is $140 /barrel – a price that has never been achieved, so Iran would have been losing money on every barrel ! In fact some, maybe half, of Iranian production has already been temporarily shuttered due to sanctions, and those would have been their most expensive wells, so Iran’s current cost of production would probably be the lowest in the world, not the highest.

    Russia sells its oil in US Dollars and converts them to Roubles. So with the value of the Rouble falling as much as the price of oil, they are getting as many Roubles for their oil as before. The problem lies in the cost of Russia’s imports which have to be paid for in other currencies (that is, not Chinese imports). The effect of this squeeze is to make European import substitution more viable, and to drive Russia further into the arms of China – both against US interests.

    All of this was perfectly predictable to Saudi Arabia when they decided to start the oil price war, so the only interpretation is that they did it to hurt US interests. This has to be obfuscated in the US to maintain the fiction that Saudi Arabia is a close ally, when in reality it has its own foreign policy that coincides less and less with US policy.

    The one idealogical thing that binds Al Qaeda, ISIS and the Taliban together is their strict Wahhabist code of Islam. The Wahhab clan of Saudi Arabia controls the holy sites of Mecca and Medina, the Hajj, the Sharia Courts and the madrassas, while the Saud clan controls the government and deals with the Infidel.

    Seem from this perspective, the whole story becomes a lot clearer.

    1. Furthermore, by setting up the US fracking patch for bankruptcy, an industry currently propped up by an initial wave of mutual fund and pension fund money, i.e., working class savings, the financial establishment is positioning itself to appropriate the ‘real’ assets of this industry for pennies on the dollar. When the theft is complete, the oligarchs and their cartels will ensure that oil prices rise once again to revive the financial viability of those assets once again. Good article and comments. Many thanks.

  2. This shows Saudi Arabia knows exactly what it’s doing and who it will hurt. Their latest update predicts US supply being cut by 170,000 barrels/day, Russia by 70,000 barrels/day, and all non-OPEC by 850,000 barrels/day :
    OPEC predicts demand rise for its crude, cuts forecast for rivals
    February 09, 2015

    OPEC is forecasting a sharp rise in demand for its crude oil in 2015 along with slower production in the US and other non-OPEC countries. Lower oil prices will lead to a slowdown in US shale production and a cut in capital spending.

    The demand for OPEC crude will rise by 400,000 barrels per day in 2015 to 29.2 million barrels, the Organization of the Petroleum Exporting Countries said in its monthly market report Monday.

    However, it cut the forecast for non-OPEC members by 850,000 barrels per day, down from its previous prediction of a 420,000 barrels per day cut, partly due to a slowdown in the US shale boom. OPEC claims lower prices will also boost consumption. The organization cut the total US oil supply forecast for 2015 by 170,000 barrels per day. That is because oil prices have forced a large number of drilling rigs to shut down, OPEC said.

    “In 2015, world oil demand is projected to rise by 1.17 million barrels per day, slightly higher than in the previous report”, OPEC said.

    “Lower non-OPEC supply is mainly due to announced capital expenditures cuts for 2015 on the part of international oil companies, as well as a decline in the number of active drilling rigs in the US and Canada, geopolitics and a heavy annual decline in Russian brown fields,” the report says.

    The forecast for output in Russia has been also lowered by 70,000 barrels per day from last month. “The country’s oil supply growth in 2014 was lower by 60,000 barrels per day over a year earlier. Part of this reduction was due to the low output of mature fields as well as sanctions by Western countries on Russian oil industries,” according to OPEC.

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