Boston Globe, among other papers, runs this analysis of how US and Saudi interests differ when it comes to oil today. I think the piece is right on target (it does, after all, repeat what I’ve been saying!) when it notes that Saudi Arabia has no interest in seeing the price of oil plummet.
I find a lot of the current commentary about Bush requesting the Saudis increase oil production to be a bit strange. Some of it—like interpreting a ‘request’ into ‘begging on bended knee’—is simple politics in this election year. Some of it is simple Saudi-bashing. But all of it fails to recognize that as an independent country, Saudi Arabia has its own, legitimate interests in the matter. Seeing the world through the eyes of an American gasoline purchaser is a pretty refined perspective, after all.
Why might the Saudis want—even need—high oil prices? Well, demographics provides a pretty good answer. With about 40% of the Saudi population under the age of 14, there’s a huge mass of people who are going to be looking for jobs in the near future. There’d better be jobs for them.
To do that, the government is taking several approaches. Improving the quality of education is one, and that takes money of course. Actually creating jobs, whether through the public or, increasingly, private sector, is another. The new ‘economic cities’ now under development, the creation of new ‘down-stream’ petrochemical factories is another.
Infrastructure is in need of both maintenance and expansion. When in the KSA in 2001-2003 (pre-oil price boom), I saw many buildings, including ministries, that had eroded badly from their original state. Roads were crumbling and services like power and water were failing. They still are in places like Jeddah, which experiences both lack of water and floods of sewage on a regular basis.
Development is expensive and Saudi Arabia, truth be told, is still very much a developing country. It’s also a country undergoing rapid, sometimes violent, reform. Money can help ease the friction, when used judiciously.
The plight of the American driver is not really very high up on the Saudi radar screens. There are domestic concerns that take precedence.
Analysis: Saudis protect own interests in oil production
H. Josef HeberWASHINGTON—When President Bush, once a Texas oilman, asked Saudi Arabia to pump more crude, he may have forgotten that the Saudis have a long memory. And that made it a good bet his mission this past week would produce a dry hole.
more stories like thisIn the 1990s the OPEC cartel was eager to pump more oil in a grab for cash as prices — like today — were going up, passing what then was viewed as a healthy sum in the $20-plus range. But then the Asia economic crisis struck and oil prices plummeted to below $10 a barrel.
Saudi Arabia and other producers got burned.
“They remember that and they’re not going have that happen again,” says Robert Ebel, an international energy expert at the Center for Strategic and International Studies. “They understand the market just as well as we do.”
This time Bush in his trip to Riyadh and his private meetings with Saudi King Abdullah walked away with a trickle of oil, but nowhere near a gusher.
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May:18:2008 - 14:33
Hi Crossroads,
Am A long time reader, First time commenter.
As a Saudi myself i kind of find it odd how the US wants SA to produce more OIL as its not going to benefit the Avrage US consumer in a way that will be noticeable(petrol prices wont go down that much), Nor will it benefit SA in any way besides losing money and More reserves.
i suspect the true meaning behind the bush visit was to help sign more military defense contracts, and the More Oil production thing is just another way to justify selling SA Arms.
just my 2 cents.
May:18:2008 - 16:46
- then the Asia economic crisis struck and oil prices plummeted to below $10 a barrel. Saudi Arabia and other producers got burned
They didn’t have to get burned. If they had employed the oil futures markets more extensively back then they would have been only slightly singed, and if they employed them more actively now they would have an assured return.
I see only three possibilities as to why the Saudis won’t increase production: (1) either they lack managerial competence, (2) they are practicing the usual sort of resource management that Western businesses do, or (3) they wish to employ oil as a personal or political tool.
Until now I would have picked number 2, for the oil companies do not lack competent management. Yet that was NOT the reason the Saudis gave, instead they voiced alleged past disappointments with their customers – grievances not much different in character than those voiced by Al Qaeda after 9-11 about the West “stealing” oil by paying too little for it.
So either for personal, domestic, or foreign policy purposes the Saudis are choosing to employ oil as a kind of weapon. In doing so they have pushed prices to the point that alternative energy development is once again a reasonable endeavor, and the high price of oil plus energy-diverted agricultural production means world food prices have skyrocketed and systemic inflation is setting in.
May:18:2008 - 21:32
I still think #2 is the right answer. They see a real problem with uneven (and sometimes unrealistic) demand. They’re afraid to invest billions in new production facilities only to have countries like the US move to biofuels or other alternatives. They did that in the 70s and got stuck badly.
Congress’ popping off with threats to somehow punish the Saudis by limiting sovereign funds investments or halting arms sales (which are also in the US interest) are both annoying and counterproductive.
Oil prices are pinching some people, though. I’m seeing right-wing blogs taking up the ‘Let’s invade the KSA’ theme again. It’s still as stupid an idea as it ever was, but it’s out there.
May:18:2008 - 21:34
Mohammed: Welcome! I hope you feel free to offer your opinion anytime you like. The more perspectives on the KSA and what’s happening there, the better informed we all are.
May:19:2008 - 01:09
They’re afraid to invest billions in new production facilities only to have countries like the US move to biofuels or other alternatives
Uh, John I think you’re mixing things up here. The Saudis have invested billions in new, higher-cost production facilities and are bringing them on line. They seem to be idling their existing low-cost wells. That normally falls under the classification of production management, and if the Saudis said so I’d accept that, but instead what they are doing is grousing.
Since the Sauds have afflicted themselves with sovereign control over oil production, is it not their duty to bend over backwards if they wish to convince others that oil decisions are being made for business purposes, rather than political ones? Certainly I suspect that they are out to score political points with disaffected (read: poor or Al Qaeda-oriented) Saudis at the very least.
As for Congress’ threats, I agree with your assessment, with one proviso: what looks like the formation of vertically-integrated “trusts” may violate U.S. laws. Ownership of a sizable percentage of production, distribution, and value-added products in the petroleum industry will be seen as encouraging monopoly pricing by economists. So maybe the Saudis should be more interested in making refrigerators and less interested in producing plastics.
Invade the KSA? What do these people have for breakfast, a bowl of stupid? No matter what we eat for breakfast, we Americans will do O.K., but it’s easy to imagine some people starving because of the higher food prices.
May:19:2008 - 08:03
I did miss your point on production. I don’t see, though, that their policy is intended to curry favor with any domestic group.
Vertically-integrated companies are considered illegal in the US only when the reach a point where they push out competitors unduly. I don’t think we have to worry about the KSA reaching that point any time soon. Even if it did, US laws affect US companies, not foreign states.
‘Xenophobia’ seems to be a best-selling brand of breakfast food. It’s so much easier to blame the other guy than admit your own mistakes.
May:20:2008 - 16:04
Even Xenophobia may be fact-based. The refusal of the Saudis to cite business reasons for withholding production leads to fallout like this: to What do the Saudis want?…To maintain their noose not only around the West’s neck but also around Asia’s neck.
May:20:2008 - 17:46
Articles like that in ‘American Thinker’ are going to appear no matter what the Saudis do. Like ‘Front Line’, it’s got an agenda that doesn’t need facts to drive it.
But yes, the Saudis could certainly do a better job explaining their policies.