There’s been a lot of foofaraw about a Saudi demand for ‘compensation’ if the political world tries to take billions of dollars in revenue away from oil producers in order to address climate change problems. From the Saudi point of view, it certainly makes sense: if politics is to outweigh markets, then politics needs to make good the shortfall caused by political action. With oil as a resource with an extremely volatile price structure, states dependent on producing already face grave uncertainties in income. Increasing the hazards of price volatility should not be done casually or for vacuous political point-scoring, the Saudis say.
The country fully understands that the world is moving away from fossil fuels; it’s doing so itself with its plans for solar and nuclear energy. But the costs of an artificially accelerated change should not have to be borne by the oil producers alone, it says.
Saudis Seek Payments for Any Drop in Oil Revenues
JAD MOUAWAD and ANDREW C. REVKINSaudi Arabia is trying to enlist other oil-producing countries to support a provocative idea: if wealthy countries reduce their oil consumption to combat global warming, they should pay compensation to oil producers.
The oil-rich kingdom has pushed this position for years in earlier climate-treaty negotiations. While it has not succeeded, its efforts have sometimes delayed or disrupted discussions. The kingdom is once again gearing up to take a hard line on the issue at international negotiations scheduled for Copenhagen in December.
The chief Saudi negotiator, Mohammad al-Sabban, described the position as a “make or break” provision for the Saudis, as nations stake out their stance before the global climate summit scheduled for the end of the year.
“Assisting us as oil-exporting countries in achieving economic diversification is very crucial for us through foreign direct investments, technology transfer, insurance and funding,” Mr. Sabban said in an e-mail message.
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October:15:2009 - 09:23
Did oil consumers and producers pay anything to whalers when they switched to kerosene and electricity? Or to horse breeders, coal companies, and railroads when the switch was made to cars? I’m amazed that this story gets any traction at all!
October:15:2009 - 09:27
Well, the traction came usually with the word ‘chutzpah’ attached to it.
The Saudi point is that if the world moves away from oil due to market forces, it will do so at a gradual enough pace that those who are clever will work around it. If the change is accelerated due to politics, that’s an artificial market distortion and the losers should be made whole.
October:15:2009 - 10:43
Insane idea!
John what is chutzpah ???
It’s human effort not only politics to decreaseour use of oil. It’s nessaccary for our planet. The saudis knew this was coming: either we finally manage to do without oil, or oil runs out. No reason to start whining.
High time to start building up your country and economy.
Not whine.
October:15:2009 - 10:49
I’m just speechless!
So instead of paying through the nose for oil, we should be paying through the nose for not buying oil????
And there I was, planning to build a completely passive house, with minimal energy consumption, and then I suppose I should Pay for being environmetally friendly?????
It’s not as if Saudi actually needs all those billions anyway. The majority of saudis gets nothing from it as it is. Just weed out all those spoilt waistrels of royals and the whole country would be doing fine on what’s left.
About high time to throw the whole al saud clan out I’d say!
October:15:2009 - 12:48
Well, that’s the point being debated: should politics or the market determine the price and accessibility of oil? The whole CO2 thing is coming under strenuous re-examination now, too, so the political urgency may not be quite as compelling as it was just a year ago.
‘Chutzpah’ is a Yiddish term that means something along the lines of ‘quite a nerve’ or ‘bold beyond belief’. It’s a sarcastic term usually, and the ur-example is of the guy who killed his parents and then asks the court’s mercy because he’s an orphan!
October:15:2009 - 12:56
I think the Saudis are making an issue that can only backfire. The countries in Europe already have high taxes on gasoline and that hasn’t stopped oil use from expanding. Given the need for energy in India and China, does anyone think that Western efforts to reduce demand are going to succeed?
Instead of seeing the possible reduction in oil use as a problem they should look at it as an opportunity. Oil isn’t their greatest resource. Their greatest resource should be their people.
October:15:2009 - 13:03
I think it was an inartful–if not boneheaded–thing to say. Yes, there’s a point to what they’re saying, but nobody really wants to hear it just now.
I think the remark was for consumption on the local market as the Saudis are very active in solar research and development. They know that petroleum is a finite resource. They also know that there’s going to be a lot of oil in the ground (good thing!) long after automobiles and power plants stop burning it. We’re going to be relying on petroleum, though to a lesser degree, for at least a century to come.
October:15:2009 - 13:52
It is so hard to separate ‘pure’ market forces from non-market based influences. For example the US could have encouraged the building of modern high speed intercity rail after WWII but it ended up building highways and airports. The US interstate highway system can be seen as a subsidy to the auto and trucking industries. So, our passenger rail systems were destroyed by government action. (I realize this is simplistic.) My point is that the adoption of the car as the primary long distance form of travel was not simply based on a free market.
The Saudis were a major beneficiary of the auto boom. They may be a major looser if that internal combustion engine stops being the way cars are powered.
October:15:2009 - 14:55
Agreed, for the most part.
I think more than the government’s interstates, it was the post-war economy, with exploding families, lots of ready cash for most, and an optimism about the future that drove the shift to automobiles. It’s not that they weren’t popular before the war, it was just that they were too expensive. Society changed, too, with people opting to leave the inner cities for suburbia where decent, cheap housing was available rather than the four-story, coldwater walkups that had been the norm.
Government certainly helped. But is responding to public demand merely ‘helping’?
The Saudis certainly did benefit from the auto boom. They profited even more from the fact that electricity is generated using oil. As Saudi petroleum tends to be of higher grade than many others, it substituted for sales by those with the lower grades. As they say, the oil market is global.
October:15:2009 - 16:30
Its not like Saudi (and other oil producing countries) couldnt see this coming and act accordingly ahead of time. We have all been discussing what will oil producing Arab countries do once that oil money runs out as they have very little else to offer the world…so if we knew it was coming…why not them?
Its just an attempt to prolong the “oil producing nipple”…or something like that.
October:15:2009 - 20:18
As John explains the Saudi position, and based on straight economics, this demand for compensation for an accelerated decline in oil prices makes sense. I really don’t find it so unreasonable that a business be compensated, or demand compensation, for encroachment on its profits by a competitor. It does have an image problem given the current global economy and ecology.
And now I am off to contemplate “the prolonged oil producing nipple” or something like that.
Coolred–you really must stop making me laugh out loud in the library! LOL
October:16:2009 - 16:30
Reading the email, it’s like the OPEC guys think of themselves solely as consumers of wealth, not creators of it, and thus seek to retain their share of the world’s economic pie even as it changes, rather than learn to go out and bake themselves. I suppose that makes sense from a Saudi prince who has been brought up from diapers with the idea that he is someone very special and all the little people in the world should bow to his desires.
October:16:2009 - 22:31
Query, so will KSA be compensating consumers for artificial INCREASES in the price of oil?