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Saudi retains oil power as Bush tries to break free

February 8, 2006

By Barbara Lewis and Peg Mackey – Analysis

LONDON (Reuters) – U.S. President George W. Bush should be
careful about wishing to kick America’s addiction to Middle
East oil because he might just lose a trusted supplier.

Oil superpower Saudi Arabia could be very happy to redirect
barrels unwelcome in the United States into energy-hungry Asia,
where Riyadh has made no secret of its drive to expand.

“It really doesn’t matter to us,” said Nawaf Obaid, a Saudi
oil adviser. “We can sell our oil anywhere.”

Saudi Oil Minister Ali al-Naimi chose his moment carefully
to respond to Bush’s State of the Union pledge last week to cut
U.S. dependency on Middle East oil by 75 percent by 2025.

“What concerns us is all the talk about not wanting our
oil,” Naimi told a high-profile energy conference in Houston,
on the doorstep of the headquarters of the U.S. arm of Saudi
government-owned Saudi Aramco.

“It’s not a major bump; it’s something to take into
consideration.”

Saudi officials have expressed surprise, but not concern,
at the turnaround in former oilman Bush’s attitude toward the
Kingdom, which for half a century has been a strategic partner.

“Bush was playing to a very, very domestic agenda,” said
Valerie Marcel, energy expert at the Royal Institute of
International Affairs in London. “It’s just rhetoric.”

Bush faces pressure at home from a public increasingly
unnerved by high petrol pump prices, huge profits for big oil
firms, environmental concerns, and U.S. reliance on a region
perceived as unstable.

“The timing was linked more to the trouble the U.S.
administration is having with the domestic impact of high oil
prices and the situation in Iraq rather than a deterioration of
ties between Washington and the Arab World,” said Jonathan
Lindley of London’s Royal United Services Institute.

MENDED TIES

Political ties between Riyadh and Washington were badly
damaged by the September 11, 2001 attacks carried out mainly by
Saudis, but they have since recovered.

Until last week, the U.S. government had been urging Riyadh
to pump more oil to try to bring down crude prices from near
record levels.

And less than a year ago, Bush pleaded with then Crown
Prince Abdullah to expand production and refining operations.

In response, Saudi Arabia presented a $50 billion blueprint
to boost its oil production and increase refining capacity
across the world.

At the same time, it has subtly shifted its commercial
focus to Asia, where explosive growth in China and India was
largely responsible for last year’s record highs on the oil
market.

Now Saudi Arabia’s number one customer, Asia imports some
60 percent of its oil from the kingdom, while for the United
States Mexico and Canada have taken over as lead suppliers,
knocking Saudi into third place.

Saudi King Abdullah and Naimi have just wrapped up a tour
of Asia, after which Naimi said he secured contracts to supply
more crude to the region.

Imported crude commands a premium on Asian markets, where
refiners have historically been willing to pay extra to lock in
supplies.

“If we just sell oil to Asia, we would be able to sell at a
higher price,” said Obaid.

Regardless of where Saudi delivers its oil, it will always
be the major influence on world markets because it is the only
producer with significant spare capacity.

“Obviously Saudi will still have a huge effect on the
global price of oil. Saudi is the ultimate guarantor of
prices,” he said.

Saudi Arabia has further reason not to feel threatened by
the U.S. comments because most believe Bush’s 2025 goals are
unachievable.

“Realistically, it is simply not feasible in any time
period relevant to our discussion today,” said Stuart McGill,
senior vice president at Exxon Mobil, the world’s largest
publicly-listed oil company.

“Americans depend upon imports to fill the gap,” McGill
said on Tuesday, dismissing the idea the United States could
ever be self-sufficient.


Source: reuters



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