Opinion: Saudi Arabia and the "Oil Weapon"
Written by : <
http://www.aawsat.net/author/salman-aldossary> Salman
Aldossary
on : Monday, 27 Oct, 2014
It is simply Saudi Arabia's fate that it is held responsible for every
little thing that occurs in the global oil markets. If prices go up or down,
the finger of blame points her way. If the global economy requires a balance
between the supply and demand for oil, all eyes are suddenly on Riyadh,
watching intently what the world's predominant supplier of oil will do next.
Again, this is the Kingdom's fate, and these are its responsibilities, from
which it must not shirk, and whose consequences it must bear, no matter
what.
During the last few weeks the sharp fall in oil prices-a staggering 20
percent-has surprised everyone. And, naturally, all the attention has
suddenly turned to you-know-who. The world's biggest supplier of oil stood
back and watched prices fall, without attempting to lower its output in
order to keep them at their previous, higher levels above the critical price
of 100 US dollars per barrel, we hear some say. Because of these rumors, a
number of conspiracy theories related to Riyadh's purported role in
affecting the global oil-price have start making the rounds: Riyadh is
responsible for the drop in prices, part of its nefarious and politically
motivated plot to damage the Russian and Iranian economies. And, as usual,
this theory has found adherents, who continue to spread it as though it is a
given, obvious truth.
Away from all these predictions, expectations and acts of amateurish
guesswork, we can see that there really is only one truth here: the only
factors responsible for the fall in the price of oil are basic economic
ones; it is a simple matter of supply and demand, something confirmed by all
experts and specialists. There has been a surge in global supply due to oil
coming from outside OPEC, specifically the US shale oil currently flooding
the market, and which represents an alternative to crude. In fact, the
dramatic drop we're seeing now was predicted around three years back, but
the dynamics of the market and a shortage from key suppliers like Iraq and
Libya held back the inevitable. However, once global demand fell in light of
the surplus in supply, the inevitable did finally happen, and it is likely
we will witness an even larger drop in the coming few weeks, just before the
critical meeting of OPEC nations on November 27.
A market leader like Saudi Arabia depends on sustained demand. Oil is not a
temporary commodity, but one which will continue to last for at least
another 40-50 years. Its price depends on a number of factors, including
supply, demand, and the amount of oil reserves around the globe.
Economically, it is therefore impossible for just one or two countries to
control the global price for a sustained period of time.
The question remains, though, why doesn't Saudi Arabia reduce its output in
order to keep prices at the critical 100-dollar-per-barrel mark, the price
it has always said was the fairest for both buyer and supplier? First off, I
think those who manage the Kingdom's oil policies have erred over the last
few years by giving the market some false impressions-namely, their
continued announcements and comments that the price will continue to remain
stable at 100 dollars per barrel, in light of this being the equilibrium
point between buyer and supplier. This has convinced the market that keeping
the price at this level is Saudi Arabia's responsibility and not that of any
other country, whether a part of OPEC or not. Second, during the global
economic crisis, Saudi Arabia was forced to up its supply by unprecedented
levels, spending billions in the process. This managed to help weather the
storm of the crisis, staving off a worldwide recession and keeping prices at
their historic, regular price of 150 dollars per barrel. Every barrel of oil
produced but not sold costs the Kingdom, so it is natural that Riyadh
endeavors to protect its market share. If there is any decision to reduce
production, it will be a joint one taken in concert with all OPEC members,
not just one of them.
A journalist from the BBC recently asked me if Saudi Arabia currently used
oil as a "political weapon" as it did back in the early 1970s when it cut
off supply to the West following the October 1973 war between the Arabs and
Israel, and similarly during the in the 1980s following the Soviet Union's
invasion of Afghanistan. My answer was that, yes, Saudi Arabia previously
used oil for political leverage, though just once in the 1970s, and this was
declared openly by Riyadh, and constituted an exceptional occasion; and if
you contend that the Kingdom's actions contributed to the fall of the Soviet
Union, well, then, you must concede that Saudi Arabia is a great nation that
succeeded in doing what all the great powers could not.
Here, it would be prudent to remind those who trade in such theories about
Riyadh affecting prices and using an "oil weapon" against certain countries,
that even if the current situation creates problems for Tehran and Moscow,
then this is their concern, not Riyadh's. Furthermore, it is illogical that
Riyadh would intervene to rescue them, for example. Let the United States do
it: let it reduce its gushing supply of 3 million barrels of shale oil per
day currently flooding the market, and rescue the Russian economy.
Received on Mon Oct 27 2014 - 11:01:26 EDT