Saudis, oil, and U.S. elections
Jun 18th, 2008 by MESH
From Gal Luft
What’s behind the sudden burst of willingness on the part of the Saudis, who announced that they will increase oil output by 500,000 barrels per day in the coming months? After all, for many months they were quite unfazed by the economic havoc caused throughout the world by the rise in oil prices. Even two visits by President Bush, loaded with offers of sophisticated weapons, nuclear technology collaboration and other goodies, didn’t convince them to open the spigot. So what changed? And why are the Iranians so opposed to the Saudi newfound goodwill? “If Saudi Arabia takes a measure to unilaterally increase [oil] output, it is a wrong move,” complained Mohammad Ali Khatibi, Iran’s new representative to OPEC, repeating the mantra that “the oil market is saturated.”
Here is a theory: The dispute within OPEC between Saudi Arabia and Iran, the first and second largest exporting members, has, in part, to do with the upcoming presidential elections. Unlike the Iranians who would like the United States to withdraw from Iraq so they can turn the country into another Iranian satellite, the Saudis dread nothing more than a strengthened and emboldened Iran and prefer the United States to stick around for a while. Their concerns about the regional destabilization associated with a nuclear Iran, and hence their loss of points in the centuries-old Sunni-Shiite rivalry, is only part of the story. What keeps the Saudis awake at night is the challenge to their ability to control the oil fields in the Eastern Province where most of Saudi Arabia’s oppressed Shiites happen to live. Iranian hegemony in the Persian Gulf could inspire a Shiite intifada in the place where Saudi Arabia’s wealth is generated, constituting a real danger to the survival of the House of Saud.
From a Saudi perspective, an American president who plans to withdraw from Iraq while being conciliatory toward Iran is bad news. The Saudis, therefore, vote McCain; Iran goes for Obama.
Pouring oil into the global market five months prior to the elections could influence the tight race in a non-trivial way. The state of the U.S. economy and high energy prices are at the top of the voters’ agenda. Most oil contracts are traded three to six months prior to delivery. The Saudi announcement would therefore signal to speculators that more supply is on the way, driving prices down in the futures markets. This could have a calming effect on the economy in the coming months, which is likely to benefit McCain. The question now is whether Iran will do something in response to help Obama.
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Having just been in Saudi Arabia and talked to many people there, I don’t buy Gal Luft’s theory at all. I subscribe to a different view, which goes like this:
Right up to and including the time of President Bush’s most recent visit, King Abdullah and his senior half-brothers were content to leave oil policy in the hands of Ali Naimi, where it has resided for years. There didn’t seem to be any reason to get alarmed, because in the past, oil prices have usually gone back down after a while. And after all, it was true, as Ali Naimi kept saying, that there was no fundamental imbalance between supply and demand, so there was no reason for the Saudis to take strong action.
Now, having heard from Bush, the Spanish, the Pakistanis and others about the problems the oil prices are causing, the king and the princes have taken oil policy back into their own hands (as King Khalid did when OPEC split on prices back in the 1970s). This isn’t about oil supply and demand any more, it’s about global politics and about the long-term threat to Saudi interests posed by the rush to alternative fuels. People have begun to recall Ahmed Zaki Yamani’s famous line: the Stone Age didn’t end because we ran out of stone, and the oil age won’t end because we run out of oil. In other words, the time will surely come when we find some other way to power our vehicles and trains and aircraft, and when that happens, too bad for Saudi Arabia. So why accelerate that day?
Hence the dusting off of the old “producer-consumer dialogue” formula long articulated by Hisham Nazer, Naimi’s predecessor. I don’t think it’s about Iran, and I don’t think the Saudis would prefer McCain over Obama. Everyone I saw in Riyadh was looking forward to an Obama presidency because, if nothing else, it won’t be a Bush presidency.
Thomas W. Lippman is adjunct scholar at the Middle East Institute in Washington, and the author of Inside the Mirage: America’s Fragile Partnership with Saudi Arabia.