Oil in the Middle East is always a contentious issue with some seeing it as the primary motive for foreign involvement and diplomacy in the region and others seeing it as a crucial tool not only in controlling world economics but also power balancing in geopolitics. Still other categorize oil as a side-factor in ideological wars on the international stage – secondary to conflicts over economic strategy, and religious or socio-cultural paradigms. The recent drop in oil prices has lead to concern over the power wielded by Saudi Arabia as the main producer and exporter of oil in the region. Are the Saudis trying to cripple American fracking as part of a competitive market strategy? Is it a Saudi retaliatory effort against Russia and Iran for their political betrayals in upholding the criminal governments of Syria and Iraq? Or is it irrelevant in the long-term as it not only benefits the economy by putting more money in the hands of consumers rather than producers, or because the industry’s days are numbered regardless with the advent of alternative methods of energy production and less demand overall? In this paper, I will briefly cover some of the theories surrounding the recent drop in oil prices, how this involves Saudi Arabia and what it might mean for the future.
Among opinions that the issue of oil prices is entirely economic is the article “Sheikhs v shale” from the December 6, 2014 issue of The Economist. The article cites the reasons for a drop in oil prices as due to “a sluggish world economy”, the overproduction of oil from OPEC countries, and fracking the US which has “boosted America’s oil production by a third.” While the article concludes with this being a positive thing, as it will put more money into the hands of consumers who will, in turn, reinject it back into the economy, it will also mean a concentration of the market into the hands of key producers. This is because high-cost producers will not be able to compete, crimping the supply and causing oil prices to rise again. Concluding that the economics of oil have changed and can now generally withstand most political shifts outside of major catastrophes, the article seems to downplay the effect of politics on the oil prices and sees the recent dip as something almost organic to the market, from which it will benefit in the long-term.
Other authors do not hold the same optimistic viewpoint and look to geopolitics as a way of accounting for human agency in effecting the oil price drop. While many blame the Saudi flood of the energy market and cite it as an attack on the growing influence of the fracking industry of the US, others like Michael Moran see oil as a means to an end, not the end itself. Oil prices are being manipulated as a geopolitical weapon which, until recently, had benefited the interests of the US in the region. While the media (in which The Economist can be included) has relentlessly repeated the ‘Sheikhs vs Shale’ debate, Moran argues that the recent flood by Saudi is actually a means of reinforcing its importance as a US ally by dealing “a direct strike […] on two already hobbled geopolitical rivals, Iran and Russia,” as well as a way of “deftly reinforc[ing] Riyadh’s centrality as the only oil producer truly able to influence global oil markets on its own.” Looking at the consequences of the Saudi flood and how these have affected its rivals, while compelling, does not necessarily imply primary motivation on behalf of the Saudis to continue pumping. Additionally, by making the argument that the Saudis have little to worry about with regards to the fracking industry, Moran also makes his argument retrospectively by equating outcomes (of reduced fracking production because of its higher cost) with reasoning – which may not be the case in terms of determining Saudi motives.
Given the insights into Saudi rule offered in the historical analysis of “Shaping the Saudi State” by Steffen Hertog, it would seem that motivations on the Saudi side might be more difficult to determine than previously thought. The deeply personal organizational structure of the government in KSA has resulted in the congealment of “institutional constellations” in politics – ministries that operate largely independent of one another, with low levels of horizontal dealings, overlap or mutual consideration. This segmentation means that there is a tendency of “various institutions to be little ‘states within the state,’” operating based on the primary motivations of those at the helm and often for individualistic reasons without structural considerations of the implications of their decisions. Given this image, it might be hard to believe that tact or clear motives are behind the recent flood of the market by Saudi.
Far more consistent at making focused strategy decisions for a variety of political-economic reasons is the United States, which Mahdi Darius Nazemroaya of the Global Research Council cites as the factor with the most influence on the recent drop in oil prices and Saudi flooding. Without splitting hairs, Nazemroaya explicitly states that the drop in the price of oil is “a US strategy of economic warfare and coercive diplomacy” meant to secure both geopolitical and business considerations in favour of American interests globally. Noting that because fracking costs significantly more than other methods of production, the Americans –knowing that they cannot compete with other producers, particularly Russia- have been “fanning the flames of instability” against Russia with regards to the Ukraine crisis. This is in addition to the fact that that there are significant energy reserves in East Ukraine and Poland which the US has its eyes on. In the case of the Saudi flood, Nazemroaya views this as a continuation in the tradition of the US using the KSA to destabilize its enemies because of the ripple effect the drive down in oil prices would have on their economies and, by extension, political positions.
Whether acting on its own authority or at the behest of its close American ally, Saudi Arabia’s effect on the current global energy markets cannot be denied. However, Juan Cole, in his article “Oil Price Fall: Saudi Arabia targets US Shale Oil, Iran, Iraq and Russia”, the author reaffirms the previous economic position by arguing that the drop in oil prices is not because of a Saudi flood or fracking but because the demand for oil has decreased so much due to “cooling economies” and the shift to alternative energy resources. In this framework, geopolitical effects are largely residual to the natural shifts of the markets. Pointing to more long-term implications of this dip in the market, Cole argues that the oil price drop and secondary political effects are mainly irrelevant because , eventually, “the economic benefit of inexpensive renewable electricity [sic] will likely outweigh the loss of oil income” and become a key method of weakening the importance of oil in the world economy. Deterministic in his outlook, Cole argues that whatever successes the Saudis and their allies enjoy are temporary as the future will bring an obsoletion of their business (and political) models eventually. While not without its own problems, the Cole article might offer a different approach to understanding the current global oil prices by adopting a methodology that is less concerned with motivations and more concerned with outcomes, less concerned with conspiratorial entities and more concerned with who benefits from what has happened, albeit in likely unpredictable ways. The assumption of a predictable, closed system by which premeditated actions yield a systemic, exact response is unlikely. Additionally, the benefits of uncovering motivations –beyond the personal ones –are yet to be determined in adding to our knowledge about the global economic, geopolitical situation.
Juan Cole, “Oil Price Fall: Saudi Arabia targets US Shale Oil, Iran, Iraq, Russia,” Informed Comments. Nov. 29, 2014.
Michael Moran, “Is Saudi Arabia Trying to Cripple American Fracking?” Foreign Policy, Dec. 23, 2014.
“The new economics of oil: Sheikhs v shale,” The Economist, December 6, 2014.
M. D. Nazemroaya, “Oil Prices and Energy Wars: The US Empire of ‘Frack’ versus Russia,” Global Research, Dec. 6, 2014.
Steffen Hertog, “Shaping the Saudi State: Human Agency’s Shifting Role in Rentier-State Formation,” Int. J. Middle East Studies. 39 (2007), 539–563.