From America’s perspective, the recent spike in oil prices, continued instability in the Arabian Gulf, and political tensions between Washington and key oil-producing countries have highlighted the cost of heavy reliance on oil from what many in Washington refer to as “tumultuous regions.”
The US is currently involved in an internal tug-of-war regarding relations with the Kingdom. On one side are those who recognize America’s dependency on Saudi oil and the need to maintain good relations to ensure the flow of energy resources.
On the other hand, there are the neo-conservatives and some political action groups that want to dismiss the decades-old friendly relationship between the two countries and push their vision of what countries should do in the region — a tactic both shortsighted and risky for worldwide stability.
The US has to be careful with politically-motivated decisions that affect international policy and relations. New suitors, who could break up this decades-old marriage of convenience, are now ardently courting Saudi Arabia.
In a few days’ time, the world’s largest oil exporter will formally become the 149th member of the World Trade Organization, which means it will open its long-protected economy to the outside world. Relations between Saudi Arabia and the world will change dramatically.
In anticipation of its formal accession, Saudi’s stock market has risen steadily since entry negotiations ended successfully last month. Investors have expressed high hopes about the country’s economic future due to the benefits it should derive from WTO membership.
“The accession will enhance the business environment in Saudi Arabia by adding more transparency and predictability,” said Commerce and Industry Minister Hashem Yamani.
But what will that mean for America’s relationship with the Kingdom? The world economic balance of power is shifting dramatically, while the US remains the world’s largest oil consumer.
Currently, the average American consumes 25 barrels of oil a year. In China, the average is about 1.3 barrels per year; in India, less than one. That said, the economic and living standards of the 2.4 billion Chinese and Indians are improving, which means they are going to want more oil — probably more than can be produced.
“This is not about India, China and Saudi Arabia. It’s about the increasing oil demand globally and America’s inability to deal with its own massive consumption and the need for investment in increasing capacity which means building refineries,” said Judith Kipper, director of the Middle East Forum at the Washington-based Council of Foreign Relations.
“Certainly in the US there aren’t any refineries being built, no one is interested, but it’s a business we should promote in Mexico, or somewhere where it could help a developing nation. It’s a primary problem for the US. There’s plenty of supply. The question is how to refine it and how to get it to market.”
“As for India and China courting Saudi Arabia, they are both growing economically, but they are both very poor countries and of course they are going to court anyone who has oil and money.”
According to the most recent UN population projection, India’s population is set to increase by an additional 401 million between 1995 and 2025, China’s by an additional 260 million.
It is this reality that is setting off an intense scramble to tie up oil reserves around the world. So far, China has been the most aggressive player. But the competition is just starting.
“The growing demand for oil is leading to a growing global conflict,” Amos Nur, a geophysicist at Stanford University, said in a recent interview. The 1991 Gulf War, the Sept. 11 attacks, and the current war in Iraq are skirmishes that could “pale in comparison with the looming potential conflict over oil with China.”
Oil has often influenced history. An American and British oil embargo on Japan, which was close to running out of fuel for its growing navy and empire, was one reason that it advanced a plan to attack Pearl Harbor to Dec. 7, 1941. That move brought the US into World War II, at a time when world oil output still was rising. A peak — when it comes — will be a major event shaping geopolitical policy and future prices.
Not to be overlooked is Russia, the world’s second-largest oil producer after Saudi Arabia, which has reasserted government control over the oil industry, resulting in complete domination of the natural gas industry. This has raised questions about whether Moscow regards oil and gas as geopolitical instruments or as commodities.
Russia is said to be considering an offer from China to buy a 20 percent chunk of the giant oil company Yukos, which has been nationalized and is being launched as a new firm.
But China is not solely relying on Russia. Its efforts to shore up oil and gas resources also include Saudi Arabia.
The challenge is huge. For China and India to reach just one-quarter of the level of US oil consumption, world output would have to rise by 44 percent. To get to half the US level, world production would need to nearly double.
India is also vying to established guarantees for its oil needs. As a show of growing relations between India and Saudi Arabia, Delhi proudly announced recently that Custodian of the Two Holy Mosques King Abdullah will be visiting India soon.
“The visit is as much a part of a larger realignment of India’s foreign and security policy as that of Saudi Arabia,” the Hindustan Times recently wrote. “The manifestations of the Indian change have been visible through the year in breakthrough agreements with the US, Japan, China and the EU, as well as the emphasis being placed on economic diplomacy with ASEAN (Association of Southeast Asian Nations) and SAARC (South Asian Association for Regional Cooperation). The Saudi shift, no less dramatic, has been marked by its battles with domestic radical Islamists and underscored by a monarchical succession. It has been marked most recently by the Saudi admission to the World Trade Organization.”
Saudi Arabia remains important to India on many levels. It is home to Makkah and Madinah, the holiest cities to the 150 million Indian Muslims. (The Muslim population in China is 11 percent, or about 19 million Muslims, while Russia’s Muslim population is estimated to be between 14 to 23 million, 10 to 16 percent of the population.) Additionally, India has the largest expatriate community in Saudi Arabia, with more than 1.6 million Indian passport holders working in the country.
India also has viewed Saudi Arabia as one of the most important countries to ensure India’s energy security and leverage against Iran if the need arises. The combination of high economic growth and dwindling domestic oil resources have considerably raised India’s reliance on imported crude, and Riyadh remains the largest supplier of oil to India.
India has welcomed Saudi membership of the WTO. In a recent statement, Delhi said: “You can’t keep a very important country like Saudi Arabia, which has a fourth of the world’s oil reserves, out of the multilateral system. By their accession, the global trading system is strengthened, becomes more predictable.”
Today Saudi Arabia and its neighbors are now enjoying a “third petro-dollar boom,” and observers wonder how they will chose to invest their new influx of cash from rising oil prices.
“Are the Gulf states going to be wiser in the way they spend their money this time? Imagine if, in 1974, had they invested in the human resources, rather than infrastructure, then the developed human resources would have built the infrastructure. They have some really important decisions to make. People need meaning in their life, they need to feel productive, it’s a basic human need,” said Kipper of the Council of Foreign Relations.
“Iraq — or any instability in the area — affects everybody. Oil analysts say that a third of oil prices is because of instability, so an uncertain future in Iraq certainly affects international confidence. That’s frightening to many countries in the area politically, especially after what happened in Jordan, because no one wants to see Iraq spill its poison elsewhere,” said Kipper.
Questions continue to revolve around Saudi Arabia, and the Arab oil producing countries’ stability in the region. In recent years, perhaps the most significant threat to oil has come from Osama Bin Laden, and now his emulators.
To date, oil supplies in the region have been disrupted by political and military action but not by terrorist action. But Bin Laden’s views are clear. He has consistently reviewed his threats against the United States and oil nations, and has urged terrorists to target oil fields in Iraq and the Gulf to disrupt US access to what he called “cheap oil.”
The Saudi decision to take on extremists who promote terror is critical. It has taken terror attacks and threats very seriously, and worked hard to end terrorist financing.
Riyadh’s efforts to combat terrorism, and accusations against it stemming from Sept. 11, have been investigated and noted. The Congressionally-appointed 9/11 Commission recently said: “We have found no evidence that the Saudi government as an institution or senior Saudi officials individually funded Al-Qaeda.”
But the Kingdom’s initiative to set up an international counterterrorism center to allow allies to share information regarding the worldwide effort to tackle terrorists, as of yet, has failed to develop. It will have to. The greatest threat to the entire Gulf is radical revolutionaries claming to act in the name of Islam — a threat also affecting every oil-consuming nation across the globe.