Stability remains the underlying principle in Saudi oil policy. That has been made clear at the OPEC summit in Riyadh. The Kingdom will not countenance oil being used as a political weapon nor is it yet convinced by arguments for an end to oil being priced in dollars.
The suggestion that OPEC be more political cannot work. It is here that all should support Custodian of the Two Holy Mosques King Abdullah when he rejected such a proposition.
Any OPEC attempt to make oil a political weapon would be highly irresponsible and almost certainly backfire. An OPEC embargo would be catastrophic for everyone, Saudi Arabia included. It would seriously damage world economic order and growth — and Saudi Arabia would be as much a victim as anyone else and probably more so. If the Kingdom and other OPEC members stopped selling oil to the US, the world’s largest consumer, Washington would turn to non-OPEC producers but all stability in oil pricing would be blown sky high. The world would end up with two oil prices — an OPEC price and a non-OPEC price, with the former tumbling because of restricted sales opportunities but the latter buoyant with the whole world to sell to.
Meanwhile, foreign investment and technology transfer on which so much of this country’s development plans and hopes of growth are based would grind to a halt. Any suggestion that Indian and Chinese companies could step into the breach can be forgotten; so much of the required downstream technology, not just IT, is licensed or controlled by the US and Washington would naturally block its use. As for sales of downstream petrochemicals, they would plummet along with their prices. If prevented from buying oil, the West would hardly buy petrochemicals, even if allowed to.
Embargos do nothing for the global economy, of which the Saudi economy is an integral part; they stunt it. An oil embargo would only hit those who impose it. The American economy is too big and too important a market for the rest of the world. No one else would join in. It would be OPEC members who would be isolated and at the mercy of consumers out to exploit its reduced market. OPEC is not, nor can it be, a political organization. It exists to protect member states’ economic interests and maintain stability in the oil market. That has long been the Saudi view. And it must remain a pillar of government policy.
What may surprise some observers of the summit, though, is the parallel announcement of a $300-million Saudi contribution to fund climate research. In fact what it says is that the Kingdom has an open mind on the issue and that views are changing. Much more research is needed, but it will only be credible if free from political, commercial or emotional pressure. A genuinely independent study on the relationship between oil, the environment and climate, which is what King Abdullah wants, would help point the way to effective action on climate change.
