Oil pol­i­tics

Pakistan Observer - - EDITORIALS & COMMENTS - Shahid M Amin

in war­fare. Amer­i­can oil com­pa­nies were mainly re­spon­si­ble for the discovery and com­mer­cial ex­ploita­tion of oil in the Per­sian Gulf re­gion. In 1932, oil was struck in Bahrain. The search for oil in Saudi Ara­bia was time-con­sum­ing till the first discovery was made near Dam­mam on March 3, 1938. Oil was com­mer­cially ex­ported af­ter the Sec­ond World War. Oil was later also found in Kuwait, Abu Dhabi, Qatar and Oman.

To­day, 64% of the global oil re­serves are in the Per­sian Gulf: 25% in Saudi Ara­bia, 11% in Iraq, 8% in Iran, and 9% each in Kuwait and UAE. If Libya and Al­ge­ria are added to the list of Mid­dle East­ern coun­tries, their share of the world’s oil re­serves and ex­ports be­comes even greater. In 1980, the Carter Doc­trine was an­nounced which stated that any at­tempt to hin­der the flow of oil from the Per­sian Gulf would be re­sisted by the USA, if nec­es­sary by mil­i­tary force. The world is so heav­ily de­pen­dent on the con­tin­ued flow of oil from the Gulf that its stop­page could cause the col­lapse of econ­omy of the in­dus­trial na­tions in the West, China, Ja­pan and In­dia, apart from other coun­tries, and could even lead to the Third World War. Iran is seen at times as pos­ing a threat to the flow of oil from the Gulf.

The Arab world used the “oil weapon” both in the 1967 and 1973 Wars with Is­rael, with bet­ter re­sults in the lat­ter war. Their oil em­bargo did soften France and other Euro­pean coun­tries who have since adopted an even-handed pol­icy in Arab-Is­rael is­sues. The oil em­bargo can be more ef­fec­tive if OPEC (Or­gan­i­sa­tion of Pe­tro­leum Ex­port­ing Email:shahid_m_amin@hot­mail.com Coun­tries) takes a com­mon stance. Even then, there are nonOPEC oil-pro­duc­ing coun­tries that can frus­trate the ef­fec­tive­ness of an oil ban. Within OPEC, there have al­ways been di­vi­sions among those who press for higher prices with­out ceil­ings on oil pro­duc­tion and those, headed by Saudi Ara­bia, who want to con­trol sup­ply and de­mand. More of­ten, Saudi Ara­bia has been a mod­er­at­ing force in the oil mar­ket.

Oil prices had been de­lib­er­ately kept low till around 1973 by oil com­pa­nies con­trolled by West­ern states. Fol­low­ing the Arab oil em­bargo, the oil price shot up and quadru­pled to $12 per bar­rel in 1974. It has con­tin­ued to rise, reach­ing a peak of $140 in 2010 where af­ter it has fallen sharply, com­ing down to $28 early this year. It has sta­bi­lized at present (mid-2016) at about $50 per bar­rel. Higher oil prices were ru­inous for poorer coun­tries while the present level of prices is a boon for coun­tries like Pak­istan. The main rea­son for fall in prices is that there is too much sup­ply of oil in the mar­ket.

Many ob­servers put the re­spon­si­bil­ity for the oil glut on Saudi Ara­bia, the sin­gle largest oil-ex­porter, which has re­fused to cut down its pro­duc­tion. Saudi Ara­bia pumps one out of nine bar­rels of oil pro­duced in the world. There seem to be some po­lit­i­cal mo­ti­va­tions be­hind this oil price war-of-at­tri­tion. Saudi Ara­bia has bad re­la­tions with Iran: lower oil prices hit Iran, which is now re­sum­ing full pro­duc­tion with the lift­ing of eco­nomic sanc­tions fol­low­ing the nu­clear deal. Low oil prices are also hurt­ing Rus­sia and Venezuela, two coun­tries that are not on good terms with the US. More­over, low oil prices lessen com­pe­ti­tion posed by oil sub­sti­tutes like shale whose pro­duc­tion had ear­lier been ris­ing in USA and else­where.

De­spite the pleas of other oil­pro­duc­ing coun­tries, Saudi Ara­bia has not cut down its pro­duc­tion, ar­gu­ing that it was leav­ing it to mar­ket forces to sta­bilise the price. Lower oil prices have also hurt Saudi Ara­bia but it has huge mon­e­tary re­serves. They are de­plet­ing at an alarm­ing rate, but the Saudi cal­cu­la­tion could be that, in the process, its ad­ver­saries are hurt­ing much more. An eco­nomic is­sue is be­ing clearly af­fected by a po­lit­i­cal is­sue viz. the cold war be­tween Iran and Saudi Ara­bia. In the process, Saudi busi­ness groups are be­ing forced to lay off for­eign work­ers. This af­fects jobs and re­mit­tances of many Pak­ista­nis in Gulf coun­tries. But the alarmist re­ports about an im­mi­nent crash of Saudi econ­omy are pre­ma­ture.

Firstly, Saudi Ara­bia has the abil­ity to bring a rise in oil prices when­ever it chooses to do so. Se­condly, for years, Saudi Ara­bia has sought to build al­ter­nate sources of in­come gen­er­a­tion. Two state-ofthe-art in­dus­trial cities, Yanbu on the west coast and Jubail on the east coast, were set up some time back. Thirdly, in­spired by Deputy Crown Prince Muham­mad Bin Sal­man, it has been an­nounced that four more mega eco­nomic cities will be set up un­der the am­bi­tious Vi­sion 2030 scheme that aims to re­struc­ture the Saudi econ­omy by pro­duc­ing ad­di­tional sources of in­come gen­er­a­tion, apart from oil. — The writer served as Pak­istan’s Am­bas­sador to Saudi Ara­bia, the ex-Soviet Union, France, Nige­ria and Libya.

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