Election year petro-politics: Obama, Iran and the Saudis

Special to WorldTribune.com

By Brian M. Downing, FreePressers.com

A few months ago, Saudi Arabia lowered oil production and attributed
it to excess world supply.

Oil experts saw this as odd because Libyan and Syria production were way down and Nigerian production was thought in jeopardy from bombing incidents. Some thought the long awaited “twilight in the desert” might be nigh, with old fields that went online back in the forties nearing exhaustion.
Others said that once-promising offshore fields were pumping out crude with exceptionally high sulfur content that most countries don’t want.

Neither is true. In recent days Saudi Arabia announced increased oil
production – much to the relief of struggling world economies and
frustrated motorists. Saudi Arabia is playing petro-politics: using
its influence on the world price of oil to send messages.

Sometimes the messages are blunt and portentous, as with the embargo during the 1973 Arab-Israeli war when King Faisal punished the U.S. for supporting Israel. But there are other, less well known cases and we may be amid one or two of them today.

Saudi Arabia long disliked the Soviet Union for its atheism and
efforts to stifle Islam in the Muslim republics along the southern
periphery. The Soviet invasion of Afghanistan in 1979 greatly angered
Riyadh. It matched U.S. funds to the mujahideen fighting the Soviets
and helped recruit Arab fighters for the holy war in Central Asia.
By the mid-eighties, the war was stalemated. The U.S. and Saudi Arabia
came upon an approach that would devastate the already stumbling
Soviet economy by driving down the price of oil.

Saudi Arabia and other Gulf states increased their output and the price of oil dropped
fifty percent after 1985. Soviet export revenue fell sharply, though
aging infrastructure in the Soviet Union played a role as well.
The decision to withdraw from Afghanistan did not stem from Saudi
petro-politics, but the Soviet economy did not recover from the export
revenue loss.

Fast forward to early 2012. The Saudis reduced oil production, citing
a non-existent glut. Talk of Israeli or U.S. attacks on Iran worry
capitals and commodity exchanges. Crude prices rise on world markets,
as do gasoline prices at the pump. As prices inched up, another
statistic went down. It was not on any exchange or market but it’s
closely watched nonetheless Many polls showed that Americans blamed
President Obama for gasoline prices and his popularity suffered for

Riyadh at the time was dismayed by Washington’s lack of action on the
Iranian nuclear program and was signalling both its frustration over
inaction and its ability to damage the president’s chances for
reelection in November. After a flurry of diplomacy and threats from
several capitals, the Obama administration stated its “red line” of
Iranian weapons production. If Iran goes beyond uranium enrichment
and tries to build an actual bomb, U.S. airstrikes will ensue.

Saudi Arabia wanted more, but in any case the U.S. drew a line and promised
action. Most polls show the president with only a small lead over his
GOP rival and all players know that petro-politics can be played
again, just before the November elections.

The paradox of Saudi Arabia’s recent cut in oil production is that the
attendant price rise brings higher revenue to all oil producers,
including its mortal Iranian enemy. This of course somewhat counters
the impact of the sanctions gradually coming down on Iran. Saudi
Arabia’s recent boost in production ends this boon to its foe across
the Gulf.

Falling world prices will hit Iran just as demand for its oil is
slumping from sanctions. Its exports are in decline and the
price-per-barrel now is as well. With the EU scheduled to reduce its
Iranian imports in July, Iran’s export revenues are on the brink of
sharp, late-Soviet-style decline.

Iran is thought to be sending cash infusions to its Syrian ally, which
is beset by popular unrest, an emerging car-bombing campaign, and
harsh sanctions. Falling export revenue may force Tehran to reduce
its subsidies to the Assad regime or impose even more privations on
its grumbling public. Saudi Arabia would dearly love to see the
pro-Iran Syrian government fall. It is supporting armed groups inside
the country and is now using petro-politics.

Iran is fighting back on world markets. Its oil ministry announced
this week that it would steadily increase oil production. Lower
prices will hurt Saudi Arabia and its Gulf allies and it will do so at
a time when those Sunni powers are trying to stave off public demand
for reform by subsidizing more social programs and construction

Consumers will be pleased as the Gulf conflict takes the form of a
price war that eases the cost of filling up. There is of course no
assurance that the conflict will remain an economic one and not
degenerate into armed conflict.

Brian M. Downing is a political/military analyst and author of The Military Revolution and Political Change and The Paths of Glory: War and Social Change in America from the Great War to Vietnam. He can be reached at [email protected].