Judith Apter Klinghoffer: What do the Saudis Want?
[Dr. Judith Apter Klinghoffer is the author of Vietnam, Jews and the Middle East: Unintended Consequences, the co-author of International Citizens' Tribunals: Mobilizing Public Opinion to Advance Human Rights and a History News Network blogger.] Slowly but surely it is beginning to dawn on a world mesmerized by the Democratic primary contest that an oil cartel has been picking our pocket with impunity by willfully failing to adjust its output to the additional needs of China and India. More specifically, Americans are beginning to wonder at the logic of continuing to keep Saudis safe. Hence, the US-Saudi oil axis faces a day of truth when president Bush will deliver diplomatically to his Saudi hosts the message NY senator Chuck Schumer delivered most undiplomatically:"We are saying to the Saudis that, if you don't help us, why should we be helping you?"
And the Saudis are only NOT helping, they are hurting.
The Saudis have let their output fall from 9.5m to 8.5m bpd over the last two years, camouflaging the move behind the accession of Ecuador and Angola to the group (which boosted nominal supply). OPEC failed to compensate for a 330,000 bpd drop in Nigerian production in April, allowing the market to tighten further.
Saudi behavior baffles none other than Dr Fadhil Chalabi, a former OPEC secretary-general and now director of the Centre for Global Energy Studies:
"They have about half a million barrels a day of good crude that they could put on the market. The puzzle is why they are not doing it. The soaring price is obviously telling us that the world needs more oil,"he said."I can't understand why the Saudis would risk their strategic relationship with the US over this."They need the US more than ever given the growing influence of Iran in the region," he said.
Prior to President Bush's visit, the Saudis put out the word out that they would promise Bush to produce more though they would not help lower the price of oil regardless of Congressional threats to proceed with legislation penalizing the OPEC producers' cartel for"anti-competitiveness practices". But when Bush arrived they rebuffed him completely arguing that they had already increased production by 300,000 barrels per day earlier this month. Consequently, the Saudi oil minister insisted, all is well:
"Supply and demand are in balance today... The fundamentals are sound."
Ouch! but why?
The short answer is: OPEC, including the Saudis, want to prevent oil from becoming obsolete. Alternatively, they want to make as much money as possible as long as possible and to be able to use their sovereign wealth funds to maintain the economic leverage they currently enjoy.
And what will it take to change their mind? For what are they bargaining?
That answer can be found in the Financial Times editorial entitled Time to convene a summit on oil ...
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