Oil and politics

Abdel-Moneim Said
Monday 29 Oct 2018

Saudi Arabia and the other oil producing countries still have major roles to play in pursuit of stability in the region and beyond

Oil is a source of energy. Politics is a manifestation of “power” and its balances and the ways of exercising it to influence others. In the Middle East and elsewhere, the relationship between oil and politics is extremely complex.

Perhaps in the midst of so many depressing and gripping events in this region, it is always necessary to underscore certain basics which, by their nature, are more important and longer lasting.

The reason that I am bringing this subject up is that, while the press and media around the world are involved in a discussion of our region and its relationship with the US and its president, Donald Trump, I had the opportunity to take part in a conference on oil. It was only natural for politics and certain current events to be the “elephant in the room” as participants talked about oil.

Oil has always been connected with two types of clashes which have sweeping effects regionally and globally.

The first comes under the heading, “the oil weapon” and its use in the Arab-Israeli conflict, whether by threatening to cut production, actually cutting production all at once or incrementally, or boycotting certain countries.

The most famous example occurred in the October 1973 War when Arab oil producers cut production by five per cent a month and boycotted the US and the Netherlands.

The second type of clash occurs when oil prices either soar or plunge. In the case of the former, some countries groan and others perk up.

The reactions are reversed in the case of the latter. There was a time when the rises and falls in oil prices were commonly connected with the Arab-Israeli conflict. Subsequently it was the Arab-Iranian conflict. More recently, they have become connected with the political upheavals in oil producing countries.

The Iranian Revolution, the events in Venezuela or the terrorist acts in Nigeria became fundamental factors in the state of nations and the misery or happiness they experience.

About a decade ago, oil prices began to rise gradually. It became headline news around the world when prices passed the $100 per barrel mark and then the $125 mark.

Articles appeared forecasting what would happen when a barrel of oil shot up to $200. That never happened. When the price reached $148 in the middle of the decade, it began to gradually decline.

Then it began to plummet until it fell to $30 per barrel and, for a little while, to $27. At that point, articles appeared predicting a further drop to $15 a barrel.

That, too, never happened, of course. Instead, the price began to climb again. When it reached $50 per barrel, producers and consumers felt that maybe it was time to agree on a “fair” rate per barrel.

But the problem was, what was “fair” when it came to oil pricing? Would $60 or $70 per barrel be fair? The price has since risen to $80 and then to $86. It continued to swing between these two numbers at the time the conference convened in Washington.

Many experts maintain that it is all about supply and demand and that political events are not a critical factor in and of themselves but rather that what counted was how the events affected the two sides of market relations.

One of the most prominent experts at the conference held that there was no relationship worth mentioning between events in the Middle East and the price of oil.

The Arab Spring came and went. The Muslim Brotherhood rose to power, fell and was defeated. None of this played a part in the rise and fall of oil prices.

Even the trend towards renewable energy, such as solar power, or new inventions such as electric-powered cars, will not have an impact until the middle of the century, and even that is doubtful.

The reasons for this are, firstly, that in spite of a lot of politics (US pressures to reduce oil prices) and exciting technological changes, the demand for oil is increasing.

During the current decade, it rose from around 92 million to over 100 million barrels of oil per day. Part of this rise is due to China and India’s growing energy consumption.

Another part is due to the fact that petrochemical products and electricity stations consume much of the oil produced. In fact, perhaps, this is the key to the continuing strategic importance of this commodity. All means of transportation combined only consume 55 per cent of the oil produced.

The remainder goes into petrochemicals. In 1974, a novel appeared with the title The Tomorrow File. It was set in the year 2000 and centred around the premise that the processing of oil so that it can be used to make industrial products will far outstrip the use of oil as a source of fuel for internal combustion engines.

The signs are that this prediction will become reality in the foreseeable future. True, it did not occur at the turn of the millennium. But, despite the delay, it is happening now. The likelihood is that the “gold standard” for oil, which is cars, will not last much longer and will be replaced by other products.

The Arab oil producing countries, and Saudi Arabia in particular, still have a controlling share of oil production, whether crude, refined or processed, as well as the liquidity this gives them in dollars.

That liquidity, alone, is one of the most important political outputs of oil production. It affects the official rate of the dollar and, for example, it contributed to the realisation of economic stability in Egypt after the June 2013 Revolution and the defeat of the Muslim Brotherhood and its affiliated terrorist offshoots in the region.

Saudi Arabia has additional advantages. Although the second largest oil producer, it is the first in terms of the ability to control supply and demand since it has a margin to raise production from around seven million to around 12 million barrels a day.

This gives it considerable political manoeuvrability and greater influence on regional and international relations.

If our most pressing concern, today, is to achieve stability in a region that has been plagued by revolutions, turmoil and civil wars since the beginning of this century, then the evidence is pointing to a sharp decline in the numbers of people killed in this region.

If cars are the gold standard for the state of oil in the world, the numbers of road deaths are one of the ways to measure the state of stability in the world.

More than 1.25 million people in the world die in road accidents. This is more than the number of people in the world killed by war, terrorism and organised crime put together.

In the Middle East, the number of war casualties has declined considerably. It is now lower than the number of victims of car accidents. Oil and Saudi Arabia and the other oil producing countries still have major roles to play.

There are big lessons we need to learn from all the above.

* The writer is chairman of the board, CEO and director of the Regional Centre for Strategic Studies.

* A version of this article appears in print in the 25 October, 2018 edition of Al-Ahram Weekly under the headline: Oil and politics

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