Playing With Fire
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.