saudi oil geopolitical trends

Oil traders appear to be hedging themselves against a possible deal between the West and Iran on the nuclear question but doing so misses the increasingly complex forces at play today in oil geopolitics. A Saudi analyst with close ties to the Saudi government issued a clear and effective description of the new Saudi government’s foreign policy doctrine in today’s Washington Post, and it clearly indicates a warning about a wider Sunni-Iranian war across the Middle East. If Tehran and Moscow were counting on the kingdom to be disorganized in the face of a succession transition, this new op ed should shed any doubts about the new government’s seriousness of purpose. The Saudi royal family rallied around a clean and clear succession announcement last January and it looks likely the same unified internal coalition is ready and willing to implement a coordinated oil and military strategy against Iran.

The White House had signaled its role in the venture for Saudi Arabia, Kuwait, the United Arab Emirates and others to change tacks on oil prices and allow low oil prices to bring pressure on Iran and Russia to come to the bargaining table on a variety of issues including nuclear negotiations, Syria and Iraq. In combination with sanctions, low oil prices has clearly increased difficulties facing regimes in Tehran and Moscow. Russian president Vladimir Putin’s brief “disappearance” and rumors of disarray in the Kremlin’s inner security circles can only have encouraged Saudi Arabia that its low oil price policy was bearing fruit. Immediately after President Putin reappeared, Saudi and Kuwaiti officials began talking oil prices down again.

But the regimes in Iran and Russia will not acquiesce to the campaign against them easily and creating geopolitical instability and uncertainty are still key wildcards they have left to play in trying to prevent themselves from falling from power, rather than capitulating to constructive peace talks. The newly raging war in Yemen is a case in point. Such proxy wars are also aimed at destabilizing Saudi Arabia and its oil market share policies. Such escalation in the geopolitical conflicts is dangerous. It also leaves oil forecasters in a quandry: Escalations mean countries such as Saudi Arabia and its Gulf Cooperation Council allies are more likely to be motivated to accelerate the downward spiral in oil markets. But at the same time, the lower oil prices go, the more reason Tehran and Moscow will be motivated to take larger risks of military and other kinds of externalized adventures to raise prices back up. The result has been increased day to day volatility as markets gyrate between fears of military conflicts spreading to a larger number of oil facilities (creating a large supply disruption) versus fears that the arsenal of floating oil inventories at sea and onland might be unleashed to drive prices to $20 a barrel.

Today’s op ed has laid Saudi policy very clear. The battle lines are existential, and the kingdom is not likely to relent either militarily or on oil unless peace negotiations are substantive. In opting to raise the stakes through proxy wars, intimidation, and veiled terror attacks, Russia and Iran will have to assess the seriousness of a Saudi strategic coalition with Pakistan, Turkey and Egypt – and so will the United States. Moreover, Israel might find the chaos of a widening Sunni-Shia war as an opportunity for a sudden and rapid attempt to slow down the Iranian nuclear program by pin point bombing a key facility, rendering the chaos factor even greater.

In all this, the United States has lacked a coherent public articulation of its goals, choosing perhaps purposely, perhaps haphazardly, to hide behind tactical actions that have confused its allies in the Mideast. It is pinning all on the prospects of a historic deal with Iran, but this perhaps is unwise since even signing a deal might not be followed with Iranian compliance to it. If Iran thought a deal and peace was imminent, its actions and statements vis a vis Yemen would be different. With so much at stake, guarding all future US moves on the chess board might not be the most effective approach for the world’s superpower. Members of the US Congress are correct in weighing in. More debate about options and the level of US engagement is needed.

A rearticulation of US purpose would be timely, especially one that includes a US policy to export its energy resources and refashion its understanding of the importance of the US strategic petroleum reserve if the pending war in the Middle East continues to escalate. A better understanding of US diplomatic goals would be useful in today’s complexity of battles on the ground, allowing the US to lead its allies instead of reacting to their independent actions.

Fuel Fix