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Obama Scaring Saudi Arabia

Politics / Middle East Oct 02, 2013 - 05:17 AM GMT

By: Andrew_McKillop


Wall Street Journal reported, 29 September, that the Obama administration's overtures to Iran and handling of the Syrian crisis have outraged the Wahabite Kingdom. Saudi Arabian royals still imagine that Obama, and his sole French ally in the fumbled attempt to bomb Syria, want to and will boost the power of armed Sunni rebel groups on the ground in Syria. They want to arm the djihadists, Saudi royals believe, but they could be very wrong.

Official Saudi fears are that Syrian president Bashr al-Assad will use the time bought by Vladimir Putin  "to impose more killing and to torture its people," Saudi Foreign Minister Prince Saud al-Faisal said on Thursday night in New York. Developments that have particularly alarmed Saudi Arabia, Qatar and the United Arab Emirates include U.S.-backed diplomacy giving al- Assad an opportunity to surrender his chemical weapons, pushing back any possible American-led military strike until some time in late 2014. Added to this, the rapidly warming relations between Mr. Obama and Iran's elected president Rouhani are treated as an outrage by the unelected Sunni-minority ruling families of the Gulf.

Prince Turki bin Faisal, another member of the family business called Saudi Arabia, threw an especially vehement tantrum in a September 12 outburst, carried by major newswires. He said: “The current charade of international control over Bashr's chemical arsenal would be funny if it were not so blatantly perfidious, and designed not only to give Mr. Obama an opportunity to back down, but also to help Assad butcher his people". We can suppose that djihadi insurgents paid for with Wahabite petro-cash can butcher all they like. For Allah. Of course.

US security analysts briefed by Saudi officials say that Saudi displeasure at the turn of events through September is now so intense they may no longer hold off supplying Stinger-type advanced missiles to Syrian djihadists. Previously, they claim they did not supply this materiel because of U.S. worries the missiles could be used against Western airplanes and other targets, but weapons experts say that Saudi Arabia has this summer already armed rebels with late-model antiaircraft weapons, when Iran-backed Hezbollah fighters entered the conflict on the side of al-Assad.

Well known to all regional analysts, the Sunni-ruled Gulf petro-regimes and especially Saudi Arabia deeply fear that Shia Muslim-ruled Iran will use large, sometimes majority Shia populations in Iraq, Saudi Arabia, Kuwait, UAE, Bahrain, Jordan and Yemen to overthrow Gulf Arab governments and shift the regional balance of power to Iran. Iran could do this, for example, simply by demanding democracy. That would be a disaster for the princes!

Prince Alwaleed bin Talal, the playboy billionaire Saudi Arabian stock market player, has warned that his country’s oil-dependent economy is increasingly vulnerable to competition from the US shale oil and gas revolution and declining or stagnant world oil demand. In a sharp change of tone among Saudi rulers, the previous no-worry stance taken by lower-level Saudi deciders – like oil minister Ali al-Naimi – has been replaced by princely concern. Alwaleed is now openly at odds with his country’s oil minister, as well as with OPEC Secretariat analysts and officials.

In an open letter addressed to al-Naimi, dated May 13 but only published July 29, the playboy prince called on the Saudi government to accelerate plans to diversify the economy away from oil. Previous to the letter's release, on May 31, talking to the Washington-based Energy Policy Information Center, al-Naimi brushed aside the royal worries. He said: “Oil supply is plentiful, demand is great, inventories are in balance, so what else do you want?” He went on to draw a parallel between the U.S. shale oil and gas booms, with the peak-then-decline of North Sea oil output in the 1980s and Gulf of Mexico output in the 2000’s, adding: “You forget history. Why are you excited?”

One reason Alwaleed is excited is that OPEC's official forecasts for world oil supply-demand trends only point to lower prices – and paying for 45 000 Men in Black djihadists in Syria comes expensive. Total demand for the cartel's crude will slip by 300,000 barrels a day (0.3 Mbd) in 2014, falling to 29.6 Mbd, about 2.6% less than the 12-member group is pumping now, when Iraq is excluded from the tally, and about 8% less when Iraq is included, using organization forecasts in recent reports. 

Falling demand for OPEC crude is driven by lackluster global oil demand trends, and also by world total oil supply growth, which rose about 2.7% in 2012 according to the IAE and US EIA.

World total demand for oil in 2012 only increased by about 0.8%.

Two countries are responsible for the bulk of OPEC supply increase – Iraq and Saudi Arabia. After overtaking Iran as OPEC's second biggest producer in 2012, Baghdad chalked up 3.2 Mbd production for its year-average in 2012, compared to 2.9 Mbd from Tehran. After 20 years of war, sanctions and civil strife that left its oil industry in tatters, Iraq is in no mood to talk about curtailing output just as it starts to take off. In summer 2013, Saudi Arabia has scored record after record for its oil output, now running at a little more than 10 Mbd.

While Iraq's feats of oil output can easily be “self-limiting” as the country slumps into Sunni-Shia civil war, Saudi overproduction is a pure question of princely kudos – and greed. As long as oil prices are held up by Saudi “objective allies” in New York, led by Goldman Sachs and the oil market-maker banks, including Barclays, JP Morgan, Deutsche Bank and BofA, other OPEC producers and non-OPEC producers like Russia will pump all they can.

OPEC total production in June-July 2013 was at least 30.3 Mbd and is well above its own “voluntary quota limit” of 30 Mbd which excludes Iraq's production of 3.2 Mbd. OPEC is already over-target, and it no longer publishes quota targets for each member state. As already noted, Iraq is excluded from quotas, even if they were published!

Alwaleed can be stressed about Iraq. Its Shia-led government, which is unelected and contested by Iraqi Sunni in the country's deadly “car bomb war”, treats rising oil output – and petrodollar revenues – as a symbol of its new power. Its largest regional rival is Saudi Arabia.

Playboy Alwaleed is with no doubt also concerned about Kurdish de facto separation from federal Iraq.  Saudi Wahabite dreams of “the Grand Caliphate” are not aided by the major foreign oil companies which are bankrolling Kurdish secession from rump-Iraq. Baghdad's boast is that it controls 143 billion barrels of reserves, but that Kurds only have 45 billion barrels in the North. Totally unlike rump-Iraq however, they have political and social stability, and intend keeping it.

Kurdish refusal to take any part in the Saudi-financed killing spree in Syria – and to defend Kurd communities in eastern Syria who want unification with breakaway Kurdistan in northern Iraq - has also caused Saudi displeasure and princely tantrums from plutocrats unable, unwilling, or more simply too cowardly to do their own dirty work in Syria. Terror-wracked Iraq, thanks to Saudi-incited Sunni extremism makes life hard, expensive and risky for the IOCs (international oil corporations), while Independent Kurdistan makes it easy.

Tehran can also play the Kurdish card though Massoud Barzani, whose father was Defence minister of the short-lived Iranian Republic of Kurdistan (1946), also called the Mahabad Republic. Barzani has an open door to Iran's presidency.

Growing Iraqi oil revenues, going to the al-Maliki Shia-dominated government in Baghdad have enraged Sunni terrorists in Iraq backed by Riyadh, Doha, Abu Dhabi and Kuwait City. Tehran therefore has a real option – to play the Kurdish card in Iraq by siding with Kurd demands for full and total independence from Baghdad. This can deprive Sunni terrorists and extremists firstly of petro-cash, and secondly of their political mastercard – their pretence they are holding the country together, preventing Kurdish secession, and maintaining Sunni sectarian dominance of the Shia-majority south and east of Iraq. Where more than 70% of all Iraqi oil is produced. 

In his letter to oil minister al-Naimi which was also addressed to his uncle King Abdullah, playboy prince Alwaleed was far from playful. He wrote:  “Our country is facing continuous threat because of its almost total dependency on oil”.

Its dependence on terrorism was not mentioned by the playboy.

Saudi oil revenues in 2012 were $336 bn, according to Saudi official sources and the OPEC Secretariat, and accounted for 92% of the state budget according to Prince Alwaleed. Doing hard work and laying off the easy work of pumping oil is difficult for Saudis. Using the easy petro-cash to kill Christians, Alawites, Druze, Kurds and Turks in Syria may be “heroic and valorous”, or easy for lazy Wahabites hiding behind their djihadists, but the century is running against this cowardly rabble.

What Alwaweed got right is simple. Oil demand will run out faster than oil supply. After that – who needs Wahabites?  Saudi dreams of the Grand Caliphate were a petrodollar dream, and all dreams come to end with the morning light. When that light comes the roaches scuttle back into their dark places, throw a tantrum and expect the world to cower. This time around, this is unlikely.

By Andrew McKillop


Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights

Co-author 'The Doomsday Machine', Palgrave Macmillan USA, 2012

Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.

© 2013 Copyright Andrew McKillop - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisor.

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