Today's media has a story which has gotten almost no coverage; yet, it is probably the most important news of the day. CNBC is reporting that the Oil Minister of Saudi Arabia announced Sunday that the Saudis have cut their oil output by about 10% because the market was "oversupplied". Let's translate this news into English. Oil prices have soared over the last two months. Oil returned to prices around $110 per barrel for the first time since the days before the great recession. Oil was about $38 per barrel when Obama took office two years ago; it has risen by 175% during his term in office. The recent oil price rise (from about $80 to $110) was driven primarily by the removal of Libyan oil output from the market and the fear that further reductions would take place. Thus, it makes no sense for the Saudis to reduce output with the claim that there is too much oil in the marketplace. So what is really happening.
To understand the Saudi action, one needs to look at the history of US - Saudi relations. Since the first oil shock in 1973, the USA has courted the Saudis and formed a close alliance with them. The first Gulf War to oust the Iraqi from Kuwait was as much about reassuring and protecting Saudi Arabia from Saddam Hussein's army as it was about liberating Kuwait. The Saudi royal family came to understand that the US would protect them and it did what was necessary to keep that alliance close. Much of the cost of that first Gulf War was actually paid for by the Saudis. When the USA invaded Iraq eight years ago, the Saudis again were pleased. The action was taken with their private approval. After all, the USA was removing a madman from their borders.
Since Obama took office, however, there has been a shift in US-Saudi relations. First of all, if the Wikileaks cables are to be believed, the Saudis begged the US to take action to prevent the Iranians from gaining nuclear weapons. Nothing scares the Saudis more than a nuclear armed Shiite Iran. The Saudis are Sunnis and their fundamentalist Wahabi version of Sunni Islam looks at the Shia as heretics. Iran has close to ten times the number of people as Saudi Arabia, so a nuclear Iran would be an existential threat to the Kingdom. The Obama answer, of course, was to bargain from weakness with the Iranians and to stop the Israelis from taking out the Iranian facilities. Obama was (and is) sure that with the force of his personality he can convince Iran to forego nuclear weapons. He would rather concentrate on the construction of apartment buildings in Jerusalem (the dreaded Israeli "settlements") than on stoppin Iran. Oh, he got some weak sanctions through at the UN, but they are just an annoyance to Iran since their buddies in Russia and China prevented the passage of any resolution with teeth. So the Saudis were ignored by Obama on Iran.
Next came the so called Arab Spring. The Saudis were horrified as Obama helped bring down Hosni Mubarak in Egypt. After all, Mubarak was a long time US ally, and the US was driving him from power. What, the Saudis wondered, would save them from a similar fate if Obama decided to help an uprising in the kingdom. Indeed, when there were protests in Bahrain, the home of the US fifth fleet and a neighbor of Saudi Arabia, the US began to "deplore" the government actions. The Saudis decided that they could not stand by idly and sent in Saudi troops to put down the protests. As of this writing, things in Bahrain are under control and there seems little chance that the government of that country will fall. Washington's reaction, however, was to condemn the Saudi incursion.
A few weeks ago, we heard that the Saudis were furious with the USA and had come to believe that they could no longer rely on the USA as an ally. According to news reports, the Saudis were approaching the Russia and China about forming alliances with them. These approaches may be warnings to the Obama administration that it cannot rely on the good graces of the Saudis. Indeed, the cut in oil production may be seen in the same way. but that is the good interpretation. The truly dire interpretation is that the Saudis are not posturing, but that they have decided that they need new allies other than the USA. That would mean that the Saudis will be pulled into the Chinese or other camp. It would mean that the Saudis will no longer worry about the effect of high oil prices on the economy of the West. In short, it would be a body blow to US properity and power.
The sad thing is that a deft administration in Washington could easily have prevented this from happening. Unfortunately, instead of people with experience in foreign relations, we have a government in Washington that functions according to ideology. There are lots of former professors who have expounded in their classrooms about theories that ought to work in their view. Indeed, some of these folks are so certain that their theories/ideologies work that they cannot see the actual reality. the real question now is whether or not Obama is capable of recognizing the disaster of the Saudi actions. If he can, then it will be possible to minimize the damage. If he cannot (which I fear is the case), then it is going to be a bumpy ride for the US in the next two years.
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