Arab Paper: Saudi Arabia Faces Hard Choice Over Cutting Oil Output

Text of report by London-based independent newspaper Al-Quds al- Arabi website on 13 September

[Editorial: "Saudi Arabia's costly oil option"]

All eyes are on the Saudi capital of Riyadh to learn whether the Saudi government will abide by the decision that OPEC made three days ago to cut oil production by 500,000 barrel per day to stop the drop in prices to the current level of 100 dollars per barrel, after rising to approximately 150 dollars a barrel a few months ago. Saudi Oil Minister Ali al-Nu’aymi kept utterly silent on this matter. He did not say whether or not his country would comply with OPEC’s latest decision, which his country signed. However, the Saudi edition of Al-Hayat newspaper cited a Saudi source as saying that the Kingdom of Saudi Arabia does intend to lower its output in view of its obligation to meet the demand for its crude oil supplies.

Over the past three decades the Kingdom of Saudi Arabia has consistently played a conservative role calming oil markets and curbing rise in prices. This is because it does not want to harm the economies of consumer countries, which are mostly Western countries. It also wants these nations to maintain their reliance on oil as an energy source and avert their search for other cheap alternatives, like solar and wind energy, ethanol, or other sources.

Ironically, this rational Saudi stand has been of no benefit to Saudi Arabia. It did not motivate its allies in the West, especially the United States, to redress its budget deficit when its heavy oil prices dipped to below 10 dollars per barrel in the late 1990s. So much so that Saudi government was forced to borrow from its Arab Gulf neighbours to pay the salaries of its public sector employees.

Saudi Arabia’s increase of its oil output by an additional 750,000 barrel per day to reach 9.7 million BPD at the request of the United States, whose economy has slid into recession and whose unemployment rate has risen to 9.7 million, has led to the current plunge in oil prices to below 100 dollars per barrel. This confirms that all reports that the record high prices of oil were due to speculations were not accurate.

Saudi Arabia is now faced with two extremely difficult options: Either to listen to US appeals and reject compliance with the OPEC agreement to lower its oil output, and thus maintain its alliance with Washington; or abide by the OPEC agreement and reduce its output, which would mean tension with its US ally. The first option, that is, non-compliance with OPEC agreement, would help the Saudi government win over the current US Administration, some Western nations, and non-Western consumer countries, like China, India, and the Third World countries, which have been harmed by the high rise in oil prices. At the same time, the Saudi government would put itself in confrontation with the extremist wing in OPEC, which includes heavy weight countries, like Iran, Venezuela, Libya, and Algeria, which want fair prices for their oil.

It may be useful to remind Saudi Arabia that its alliance with Iran and Venezuelans saved oil prices from collapse at the end of the 1970s and raised prices to above 20 dollars per barrel a few months later.

The Saudi decision, which is expected to be made in the next few days, will have impact, not only on oil prices, but also on the map of international oil alliances and perhaps on international political alliances.

Originally published by Al-Quds al-Arabi website, London, in Arabic 13 Sep 08.

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