Saudi Arabia, Oil and Politics
On December 2nd, 2014, Michael Stephens published an interesting piece in the BBC entitled “Why is Saudi Arabia using oil as a weapon?” In the article, Stephens talks about how the Saudi Arabian leadership is urging states in the Organization of Petroleum Exporting Countries (OPEC) to continue production levels of oil, which are at 30 million barrels a day. This in turn, has been part of the reason for the decline in oil prices, which are hovering around the 70 dollar per barrel range.
It is a good article because it discusses Saudi interests with regards to oil, their ability to produce it, and their geopolitical interests. Saudi Arabia has much more long term production of oil than most other states in OPEC. Thus, they can afford higher daily productions. And while the United States (and Canada) are expanding their production, the Saudi state is also producing more. Stephens argues that part of this is due to the relationship between Saudi Arabia and Iran. As Saudi Arabia views Iran as rising in power and influence in the region, they are attempting to challenge their rise through economic power. As Stephens explains, “Iran’s economy is heavily reliant on hydrocarbons, which make up some 60% of its export revenue and provided 25% of total GDP in 2013. Deeply committed to the fight in Syria, and Iraq, the Iranians are spending untold millions of dollars a month to maintain their operations in the two countries, all the while attempting to placate potential domestic unrest. Interestingly, the Iranians proposed cutting Opec output ahead of the November conference only for the Saudis to rebuff them.” He also argues that higher OPEC output also hurts Russia, who has been suffering due to the fall in oil prices.
These are important points, and show how oil is still being used as a political tool in the world.
However, I think something else is also at stake here. As the US and Canada continue to produce more oil, the long-term reliance on Saudi oil may decline. But, with high supply of oil, and low prices, it could at least make some in the US, and particularly Canada (where it is very expense to produce the oil), think again about how invested they want to be with regards to their own oil production, when the international oil supply is keeping prices relatively low.
