Play­ing With Fire

Alberta Oil - - EDITOR’S LOG - Nwil­son@al­ber­taoil­magazine.com

THE MID­DLE EASTERN OPEC

coun­tries that aren’t al­ready up in smoke are tin­der­boxes, and Saudi Ara­bia’s King Sal­man has just reached for the matches. His gov­ern­ment ush­ered in the new year by be­head­ing a top Shia dis­si­dent cleric. It was a cal­cu­lated goad­ing by the Sunni monar­chy, trig­ger­ing protests and the trash­ing of the Saudi em­bassy in Iran.

Those of us who re­mem­ber the “Tanker War” in the ‘80s, when Ira­nian and Iraqi jets chased each other’s oil tankers up and down the Gulf fir­ing mis­siles at them, know how things can es­ca­late. Kuwait found this out the fol­low­ing decade when Iraq ac­cused it of slant drilling un­der the fence and help­ing it­self to Iraqi oil. Kuwait was in­vaded and all its oil wells were de­lib­er­ately torched.

All Gulf OPEC mem­bers have tense bor­der dis­putes with at least one neigh­bor, so off­shore is­lands and oil plat­forms in the re­gion bris­tle with radar and mis­siles. Iran reg­u­larly threat­ens to close the Strait of Hor­muz to ship­ping, as Sunni and Shia con­flicts smol­der on Saudi borders to the north, east and south.

On these gov­ern­ments – and on the ac­cu­racy of Saudi gun­ners in shoot­ing down in­com­ing mis­siles fired at oil in­stal­la­tions by Ira­nian-backed rebels in Ye­men – de­pend the for­tunes of Al­ber­tan drillers. Aside from the short­term eco­nomic weapon of cheap oil, the Saudi king­dom also has a medi­umterm weapon in its eco­nomic arse­nal – the sun. Dur­ing peak sea­sonal power de­mand, as much as 700,000 bpd of crude burn in Saudi power sta­tions. Of its planned 41 gi­gawatts of so­lar power ca­pac­ity, the king­dom’s only built small plants so far. But it only takes two years to build a so­lar farm, re­leas­ing more oil for ex­port. Even launch­ing the first phase of this pro­ject would im­pact oil prices.

The king­dom has an­other pow­er­ful mo­tive to do this: money. The World Bank es­ti­mates Saudi Ara­bia spends 10 per­cent of its GDP on en­ergy sub­si­dies, or about $80 bil­lion a year. These are sub­si­dies that it is now hav­ing to cut, risk­ing so­cial un­rest. Wars cost money. The IMF says the king­dom’s es­ti­mated $640 bil­lion in for­eign re­serves will run out in five years at this rate. But Riyadh thinks it has greater stamina than Iran and its ally Rus­sia, whose oil dol­lars buy weapons for Saudi en­e­mies. The coun­try war­ily eyes Iran’s un­leash­ing of 500,000 bpd onto a post-sanc­tions mar­ket.

The Saudi king­dom needs lower oil prices now, to squeeze Iran’s de­pleted cof­fers tighter and faster, which it hopes will also stran­gle North Amer­i­can pro­duc­ers.

Washington, Riyadh, Tehran … no one men­tions Ottawa, de­spite Canada be­ing a top oil ex­porter. Ac­cess­ing only one mar­ket and hav­ing no ef­fec­tive na­tional strat­egy to get our crude to tide­line, Canada can do lit­tle to in­flu­ence global en­ergy pol­i­tics. To find out when the sun will once again rise over the oil sands, face east – and look all the way to the Ara­bian Gulf.

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