- By Daniel W. Drezner
Daniel W. Drezner is professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University and a senior editor at The National Interest. Prior to Fletcher, he taught at the University of Chicago and the University of Colorado at Boulder. Drezner has received fellowships from the German Marshall Fund of the United States, the Council on Foreign Relations, and Harvard University. He has previously held positions with Civic Education Project, the RAND Corporation, and the Treasury Department.
In a lot of ways, Saudi Arabia has had a lousy six weeks. Revolutions, protests and general unrest have spread across the region from far-away Tunisia to way-too-close-for-comfort Bahrain and Yemen. You’re starting to see mainstream meda reports suggesting that the Kingdom’s influence is waning compared to Iran. The region is clearly spooked enough to spend an extra $36 billion to forestall a massive turnout for the planned "Day of Rage" on March 11. If that doesn’t work, the king might have to fall back on The Onion’s suggested strategy.
With all of this going on, however, I find this report by the Financial Times’ David Blair, Jack Farchy and Javier Blas to be veeeeerrrrryyy interesting:
Saudi Arabia is in “active talks” with European oil companies to meet the production shortfall left by Libya, the clearest indication to date that the leader of the Opec oil cartel is about to boost supplies to stop further rises in the oil price, which surged to near $120 a barrel on Thursday.
Riyadh is asking “what quantity and what quality of oil they [the European refiners] want,” a senior Saudi oil official said on condition of anonymity….
Paolo Scaroni, Eni chief executive, on Wednesday made the most pessimistic public assessment to date of the impact of the Libyan crisis on the country’s oil output, saying the country was producing only 400,000 b/d, compared with 1.6m b/d before the violence erupted.
“The real phenomenon is there are 1.2m barrels less on the market,” Mr Scaroni told reporters in Rome, adding that the loss of Libyan production was “not a huge thing, but it is something and there is also a sense of general uncertainty in the region which can be the trigger for speculation”.
The shortfall means the world market is enduring its biggest oil crisis since hurricane Katrina in 2005 knocked out most US oil production in Gulf of Mexico.
Traders believe that Saudi Arabia has the capacity to increase production and also the oil of the right quality to meet the shortfall. The kingdom produces so-called Arab Extra Light and Arab Super Light, which through blending could be made to resemble the high-quality, light, sweet oil produced by Libya.
The Saudi move comes as oil prices reached levels that many economists believe will dramatically slow the global economy and potentially trigger a double-dip recession. Oil prices hit an all-time high of nearly $150 a barrel in mid-2008.
Here’s my question: why are the Saudis being so cooperative at this point? There might be sound strategic reasons — preventing a double-dip recession, assuaging longstanding allies, etc. It could be that the Saudi leadershipis feeling secure enough to plan for long-term price stability.
Still, based on the recent reportage, I’m a little surprised that the Saudis aren’t exploiting the current uncertainty to ensure the security of the current regime going forward. If I was a Saudi prince right now, I’d be
blowing my fortune during a 72-hour blowout in Vegas involving Salma Hayek, Christina Hendricks, and all the shrimp I could eat making it very clear to my buyers just how important stability is in my neck of the woods.
As an energy consumer, I’m grateful for the current Saudi behavior. As someone who studies the global political economy, I’m surprised and puzzled by this same behavior.
Am I missing anything?