OIL PRICES: SAUDI WEAPON
As the price of oil plummets to a five-year low, Saudi Arabia – owner of the world's largest proven crude reserves – is behaving with almost preternatural calm. So much so that Prince Alwaleed bin Talal Al Saud, the kingdom's highest-profile investor, a few weeks ago professed himself astonished by official complacency in the face of this "catastrophe" – and that was when the price was still above $90 a barrel.
Now, there are doubtless technical reasons why the Saudis remain sanguine as the price dips well below $70, and the kingdom's oil technocracy has been prodigal in providing them. This is no different, they say, from any other commodities cycle, in which the market sets prices. The main Saudi concern is to protect market share. If there is any "politics" involved here, analysts add, it is an attempt to force US shale producers with higher production costs out of the market.
It is true, as the Saudis protest, that neither they nor Opec as a whole can set the price. But do they protest too much, as they do nothing to arrest the speed of falling prices? It is not just that the oil producers' cartel, where Saudi Arabia still rules the roost, declined to cut output at last month's meeting. As recently as September the Saudis were actually increasing supply to a glutting market.
The Saudis have never abandoned the use of petrodollars for political ends; it is its principal diplomatic weapon. But now they and their Gulf allies appear to be using the oil price itself as a political weapon – aimed principally at Iran.
The practice of hosing socio-political problems with money has been especially visible since the chain of Arab uprisings began four years ago. In early 2011, King Abdullah fired a $130bn welfare broadside at his Saudi subjects. But this traditional model of buying loyalty was quickly exported to neighbouring countries under stress. Within hours of the 2013 Egyptian coup against the Muslim Brotherhood – a rival Pan-Islamic brand – Saudi Arabia and the United Arab Emirates had a $12bn aid package ready for the generals, almost 10 times annual US aid to Egypt's military.
But the more threatening regional rival to the House of Saud and its absolutist brand of Sunni Islam is Iran – which, since the 2003 US-led Iraq invasion installed a Shia government there, has forged an Arab Shia axis from Baghdad to Beirut, with influence, too, in Saudi neighbours Yemen and Bahrain.
Wahhabi Saudi Arabia's visceral hatred of the Shia – as well as its rivalry with the Persian and Shia Islamic Republic for hegemony in the Gulf and the Levant – should be factored into the oil price equation. Riyadh, sitting on foreign exchange reserves of more than $750bn, can ride out lower oil revenues. Iran, which needs the price to be twice the current level to make ends meet, is haemorrhaging. Already economically hobbled by sanctions, Tehran is by some estimates spending $1.5bn a month supporting its allies in Syria and Iraq.
Iran, of course, is aligned if not allied with the US and its European and Arab partners, including Saudi Arabia, in the fight against the Islamic State of Iraq and the Levant. And President Barack Obama continues to pursue a rapprochement with Tehran through negotiations over its nuclear ambitions. But the US cannot be in any doubt about Saudi sentiments towards Shia Iran and the idea of a regional thaw. According to a well-placed Arab figure, a senior Saudi official told John Kerry, US secretary of state, while he was talking to Sunni Arab leaders this summer about a coalition against the jihadis: "Isis is our [Sunni] response to your support for the Da'wa" – the Tehran-aligned Shia Islamist ruling party of Iraq.
Markets of course influence oil prices; but so do viscera.
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