When Barack Hussain Obama, the president of the world’s largest gas guzzler, landed in Riyadh, the world’s largest gas station, last week, it would have really been naïve to expect that the continuing global oil saga-with prices firming up to the highest points in the year-would not be on his mind.
His cards were already out in open.
“It was not in the interest of Saudi Arabia to have huge spikes in oil prices,” he said before leaving Washington for Riyadh. The message was clear: Saudi Arabia needed to use its influence on the oil markets to control market swings.
“It doesn’t serve either country to have economies constantly disrupted by huge spikes in energy prices,” he made clear.
Oil prices have remained an issue with the Washington establishment for decades. It has not shied in past from twisting arms as well. When George W. Bush visited Saudi Arabia twice over a period of few months last year, oil and oil issues were definitely on the top of the agenda. Crude prices were then galloping, destined to the ultimate spike that it finally hit in July.
Washington, like the rest of the industrialized world, remains hooked on an economic model based on a reliable supply of cheap crude. That is imperative for the continued prosperity of the US and the country’s leaders are ready to use all the power at their disposal to maintain that status quo. This is the model the US has known for many decades, and the country sees this as the only cure for the global economic malaise.
President Obama’s recent visit to the region was no exception.
Already there were indications that the president would like to ascertain from the Custodian of the Two Holy Mosques King Abdullah his country’s rationale behind the insistence on a targeted price of $75-80 per barrel of crude.
Riyadh knew what was in store and hence it started to position itself even before Air Force One landed at King Khaled on June 3. The Saudi position was made clear: $75-80 a barrel is a fair price for its crude.
The Saudi Council of Ministers in a recent weekly meeting also reviewed the results of the May 28 OPEC meeting, in which the 12-member oil “cartel” decided to keep its output unchanged amid surging prices. The Saudi Cabinet made its view documented that OPEC’s move wouldn’t leave a negative impact on the recovery of the global economy.
Earlier, King Abdullah in an interview with the Kuwaiti daily Assiyassa expressed optimism about the future of the oil market.
“We are currently seeing a fast recovery for the global economy and there are indications of a higher demand for oil,” he told the paper.
Minister of Petroleum and Mineral Resources Ali Al-Naimi was also categorical on the issue: “The global economy has strengthened enough to cope with oil at $75-80 a barrel and that level will be hit soon as fuel demand picks up.”
The line was drawn in the sand even before Air Force One touched down in Saudi Arabia, but debate has raged in hotel corridors about why Riyadh has been adamant that this is a “fair” price. US officials and their accompanying media junkets were definitely interested in finding out the Saudi argument.
But Saudi Arabia isn’t the only player in the game. The Kingdom is definitely the OPEC kingpin, but within OPEC there are other players, too, known as the “hawks” that — for their own sometimes-valid reasons — endeavor to aim at price spikes. Riyadh single-handedly cannot force OPEC’s decisions and policies. It needs to consider every member’s views. Compromises are made. There are those in OPEC who are striving for $100 a barrel; the target price of $75-80 is the compromise.
And then the issue of investments in the sector also needs to be seen in its correct perspective. Saudi Arabia and other producers have been warning for some time now that, unless global markets stabilize at $75-80 level to drive investment in new energy supplies, another price spike could just be around the corner.
And who can contest that? Under-investment in the sector could be disastrous and the producers have been reiterating that the real challenge would then be to keep prices at a fair level for all.
When Obama landed in Riyadh on June 3, the divide was ominous. And it continues to be so after Obama’s departure.
If George W. Bush, despite his obviously belligerent, cowboy attitude, couldn’t achieve the unachievable, how can Obama? Meanwhile, history continues its march and the sun is setting on the US empire.
