what's left

Saudis Use Leverage Over Oil Pricing To Tempt Russia To Withdraw Support For Syria

with 10 comments

February 2, 2015

By Stephen Gowans

The idea that market share concerns are behind Saudi Arabia’s refusal to use supply management to prop up oil prices is challenged in an article in today’s New York Times.

According to the article, the Saudis “believe that there could be ancillary diplomatic benefits to the country’s current strategy of allowing oil prices to stay low — including a chance to negotiate an exit for Mr. Assad” by encouraging Russia to withdraw its support for the embattled Syrian president in return for the Saudis allowing the price of oil to rise.

Saudi Arabia can sway oil prices significantly by cutting back or increasing production. It is the leading player in OPEC, with a fifth of the world’s oil reserves.

The Saudis reportedly “told the United States that they think they have some leverage over Mr. Putin because of their ability to reduce the supply of oil and possibly drive up prices.”

What’s left unspoken, however, is that the leverage didn’t just happen by chance, but came about because the Saudis have refused to exercise their sway, despite substantial harm to themselves.

As the article points out, “Saudi Arabia needs the price of oil to be over $100 a barrel to cover its federal spending, including a lavish budget for infrastructure projects. The current price is about $55 a barrel, and Saudi Arabia has projected a 2015 deficit of about $39 billion.”

Low oil prices mean the Saudis also have leverage over Iran and Venezuela, which, like Russia, are major oil-producers, and like Russia, are objects of enmity in Washington.

The New York Times also reported that former Al Qaeda operative, Zacarias Moussaoui, currently locked up in a US federal supermax prison, testified before a US District Court “that he was directed in 1998 or 1999 by Qaeda leaders in Afghanistan to create a digital database of donors to the group. Among those he said he recalled listing in the database” were three members of the Saudi royal family:

• Prince Turki al-Faisal, then the Saudi intelligence chief;
• Prince Bandar Bin Sultan, the longtime Saudi ambassador to the United States;
• Prince al-Waleed bin Talal, a prominent billionaire investor.

Saudi sources have long been credited with funding the violent fundamentalist Muslim group, but until now news reports have suggested that the funding has come from Saudi civil society, and not the state.

The Saudi royal family, has, throughout its history, been deeply involved in projects to advance British and US foreign policy goals, in return for arms, diplomatic support, and protection of the family’s power and privileges as unelected leaders of the country.

One service the Saudis have provided to the West has been to export Islamist extremism to counter nationalism and socialist and communist movements in the Arab and Muslim worlds.

Another service has been to use oil supply management to intervene in energy markets to facilitate US foreign policy objectives.

For example, The Wall Street Journal pointed out in December that, “During the 1980s, the Reagan administration credited the Saudis with maintaining high oil production to drive down prices and weaken the Soviet Union’s finances.” And “President Barack Obama ’s administration has worked closely with Saudi Arabia to try using energy markets to pressure Iran into constraining its nuclear program, according to U.S. and Saudi officials.”

The newspaper also reported that “U.S. and Arab officials have privately gushed” that the Saudi-assisted price decline is giving Washington greater leverage over Tehran, Moscow and Caracas.


Written by what's left

February 4, 2015 at 7:19 pm

Posted in Saudi Arabia, Syria

10 Responses

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  1. The fact is though, the oil price is an indiscriminate weapon, and what Saudi Arabia has done has hurt ALL oil producers, including itself and the US. The producers it has hurt most are those with the most expensive production costs, and that is most definitely NOT Russia and Iran, but the fracking industry in the US.

    Some ridiculous charts have been published by the western media that suggest that Iran’s cost of production is $140 /barrel – a price that has never been achieved, so Iran would have been losing money on every barrel ! In fact some, maybe half, of Iranian production has already been temporarily shuttered due to sanctions, and those would have been their most expensive wells, so Iran’s current cost of production would probably be the lowest in the world, not the highest.

    Russia sells its oil in US Dollars and converts them to Roubles. So with the value of the Rouble falling as much as the price of oil, they are getting as many Roubles for their oil as before. The problem lies in the cost of Russia’s imports which have to be paid for in other currencies (that is, not Chinese imports). The effect of this squeeze is to make European import substitution more viable, and to drive Russia further into the arms of China – both against US interests.

    All of this was perfectly predictable to Saudi Arabia when they decided to start the oil price war, so the only interpretation is that they did it to hurt US interests. This has to be obfuscated in the US to maintain the fiction that Saudi Arabia is a close ally, when in reality it has its own foreign policy that coincides less and less with US policy.

    The one idealogical thing that binds Al Qaeda, ISIS and the Taliban together is their strict Wahhabist code of Islam. The Wahhab clan of Saudi Arabia controls the holy sites of Mecca and Medina, the Hajj, the Sharia Courts and the madrassas, while the Saud clan controls the government and deals with the Infidel.

    Seem from this perspective, the whole story becomes a lot clearer.


    February 4, 2015 at 9:32 pm

    • It seems to me the dependence of the Saudi regime on the U.S. government and ruling class is so great that the Saudis would hesistate to obstruct or provoke them. In fact, I would assume S.A. is pretty much a satellite and ask, not what is in the Saudi interest, but what about the oil price war is in the interests of the U.S. ruling class. For geopolitical reasons the U.S.r.c. would like to see Russia out of Syria, so putting financial pressure on Russia might anticipate a deal in which Russia gets higher oil prices and some other goodies, while the U.S.r.c. gets Syria.


      February 5, 2015 at 6:50 pm

      • Saudi Arabia needs someone to sell it weapons, and someone to spend a fortune on policing the Persian Gulf. The US needs Saudi Arabia to sell its oil in US Dollars, and to invest their spare Dollars in dollar-denominated assets. It also wants them to act as “swing producer” to keep prices stable, because they don’t want to do it themselves.

        So they need each other, no doubt about it. But there comes a point when the alliance costs too much.

        Saudi has supported the mujihadeen in Afghanistan through its madrassa networks ever since it suited the US to drive the Soviets out. But they evolved into the Taliban and Al Qaeda, and then it didn’t suit the US. They have fighting them ever since, while Saudi is still supporting them.

        The US is a strong supporter of Israel, while Saudi is a supporter of the Palestinians. The Al Aqsa mosque is Sunni Islam’s third holiest site. Saudi has been forced to give way on this, but it doesn’t like it.

        The US supported Mubarak, then abandoned him and supported the Morsi Muslim Brotherhood government, which the Saudis hated. The US was cool about the Al-Sisi coup, but was forced to support it, to maintain its influence.

        The US was against Syria, but wouldn’t deliver the death blow, which infuriated the Saudis. The rebels are all Wahhabists, following the Saudi code. Now Saudi is nominally in the anti-ISIS alliance, but as we have just seen, UAE dropped out of the alliance and it wasn’t revealed for 6 weeks, so one wonders just how hard Saudi is actually trying.

        The US lobbied hard for a seat for Saudi on the UN Security Council, but when they won it, they promptly refused it, effectively saying they didn’t support the UNSC.

        The US is internationally embarrassed by having to support the medieval Saudi Kingdom while professing Freedom and Democracy, while Saudi makes no apology, and seeks to extend Wahhabism everywhere it can.

        Does this all sound like they have a master-servant relationship?


        February 6, 2015 at 12:22 am

      • Furthermore, by setting up the US fracking patch for bankruptcy, an industry currently propped up by an initial wave of mutual fund and pension fund money, i.e., working class savings, the financial establishment is positioning itself to appropriate the ‘real’ assets of this industry for pennies on the dollar. When the theft is complete, the oligarchs and their cartels will ensure that oil prices rise once again to revive the financial viability of those assets once again. Good article and comments. Many thanks.

        Norman Pilon

        February 7, 2015 at 6:14 pm

    • @ davekimble.

      You sound like a pro-American shill who is trying a little too hard to deny that the United States is ultimately pulling the trigger on the oil weapon against not only Russia, Iran, but also Venezuela, as a form of economic aggression.

      How the CIA Launched the «Financial Pearl Harbor» Attacks on Russia and Venezuela

      What you attempt to obsure is that the American Empire acts according to its broader imperialist ambitions (i.e. maintaining American global dominance and destroying all resistance to Americanism globally) and not merely the fate of one sector in a particular industry like fracking.

      The fracking industry itself has always been based upon an unsustainable bubble–a bubble that will pop sooner or later, Indeed, the decline in oil prices has provided a very politically convenient alibi to “explain” the decline of this industry–which would have eventually occurred regardless of this price drop.

      America is trying to deploy the oil weapon against Russia just like it was deployed against the Soviet Union during the Cold War to destroy this nation.

      The US is Yet Again Trying to Create an Oil and Gas Collapse in Russia

      But American Empire bravely hides its political satraps like Saudi Arabia to do this dirty work.

      This is similar to how America hides behind the skirts of nations like Turkey, Qatar, Israel, Jordan, Saudi Arabia to fund, arm, and support Islamic jihadists against Libya, Syria, and other countries. This is at the same moment that America claims to be fighting Islamic jihadists in its big lie called the War on Terrorism.

      ISIL is Secret American Army in Middle East – US Historian

      The tentacles of the American Empire are insinuated throughout the Middle East and beyond.


      February 23, 2015 at 6:16 am

  2. I hadn’t thought of the fracking crash. That’s a good point.

    I am doubtful that the U.S.r.c. is greatly worried about al-Qaeda and the Islamic State. The suddenness of the appearance and extension of the Islamic State suggests that someone was giving them a lot of help. Who could do that, and might be so motivated? Not the weak Arab states, nor Iran or Russia. That leaves the short list of Turkey, Israel, and the U.S. and its satellites, all of whom have some interest in keeping the Arabs fighting one another.


    February 9, 2015 at 4:02 pm

    • Well that’s not what US thinks, as this Wikileaks leaked diplomatic cable shows.

      7. (U) Saudi Arabia background (S/NF)
      While the Kingdom of Saudi Arabia (KSA) takes seriously the threat of terrorism within Saudi Arabia, it has been an ongoing challenge to persuade Saudi officials to treat terrorist financing emanating from Saudi Arabia as a strategic priority.

      Due in part to intense focus by the USG over the last several years, Saudi Arabia has begun to make important progress on this front and has responded to terrorist financing concerns raised by the United States through proactively investigating and detaining financial facilitators of concern.

      Still, donors in Saudi Arabia constitute the most significant source of funding to Sunni terrorist groups worldwide. Continued senior-level USG engagement is needed to build on initial efforts and encourage the Saudi government to take more steps to stem the flow of funds from Saudi Arabia-based sources to terrorists and extremists worldwide.

      (S/NF) The USG engages regularly with the Saudi Government on terrorist financing. The establishment in 2008 of a Treasury attache office presence in Riyadh contributes to robust interaction and information sharing on the issue.

      Despite this presence, however, more needs to be done since Saudi Arabia remains a critical financial support base for al-Qa’ida, the Taliban, LeT, and other terrorist groups, including Hamas, which probably raise millions of dollars annually from Saudi sources, often during Hajj and Ramadan.

      In contrast to its increasingly aggressive efforts to disrupt al-Qa’ida’s access to funding from Saudi sources, Riyadh has taken only limited action to disrupt fundraising for the UN 1267-listed Taliban and LeT-groups that are also aligned with al-Qa’ida and focused on undermining stability in Afghanistan and Pakistan.


      February 10, 2015 at 1:28 am

      • This shows Saudi Arabia knows exactly what it’s doing and who it will hurt. Their latest update predicts US supply being cut by 170,000 barrels/day, Russia by 70,000 barrels/day, and all non-OPEC by 850,000 barrels/day :

        OPEC predicts demand rise for its crude, cuts forecast for rivals
        February 09, 2015

        OPEC is forecasting a sharp rise in demand for its crude oil in 2015 along with slower production in the US and other non-OPEC countries. Lower oil prices will lead to a slowdown in US shale production and a cut in capital spending.

        The demand for OPEC crude will rise by 400,000 barrels per day in 2015 to 29.2 million barrels, the Organization of the Petroleum Exporting Countries said in its monthly market report Monday.

        However, it cut the forecast for non-OPEC members by 850,000 barrels per day, down from its previous prediction of a 420,000 barrels per day cut, partly due to a slowdown in the US shale boom. OPEC claims lower prices will also boost consumption. The organization cut the total US oil supply forecast for 2015 by 170,000 barrels per day. That is because oil prices have forced a large number of drilling rigs to shut down, OPEC said.

        “In 2015, world oil demand is projected to rise by 1.17 million barrels per day, slightly higher than in the previous report”, OPEC said.

        “Lower non-OPEC supply is mainly due to announced capital expenditures cuts for 2015 on the part of international oil companies, as well as a decline in the number of active drilling rigs in the US and Canada, geopolitics and a heavy annual decline in Russian brown fields,” the report says.

        The forecast for output in Russia has been also lowered by 70,000 barrels per day from last month. “The country’s oil supply growth in 2014 was lower by 60,000 barrels per day over a year earlier. Part of this reduction was due to the low output of mature fields as well as sanctions by Western countries on Russian oil industries,” according to OPEC.


        February 10, 2015 at 2:02 am

      • More on the oil price drop and who (cough, America) is really beind it all:

        “Instead of focusing on Saudi Arabia and claims that it is solely responsible for global oil prices being cut in half despite no discernible changes in supply and demand, the global public should see a wider confrontation playing out. The US is using its vast influence over finance, energy, the media and many other economic and political sectors to wage full spectrum war on those resisting its hegemonic expansion globally.”

        Mystery Behind Dropping Oil Prices Solved — Concerted Manipulation


        February 23, 2015 at 6:29 am

      • So why didn’t they do it before, if it’s so advantageous? And doesn’t the drop in the price of oil negatively affect our American oil lords? Isn’t it beneficial to oil-poor competitors, like China and India?


        February 23, 2015 at 3:33 pm

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