BUSINESSMIDDLE EASTOPINION

Energy politics of the major powers

By Shahzadi Tooba Hussain Syed

Energy is power (Physicists may not agree) but control of energy supplies confers enormous power on the nations that wield it. Access to oil supplies played a critical role in Germany’s and Japan’s military and diplomatic strategies during World War II. In 1973, the U.S. Department of Defense actually developed plans for a Rapid Deployment Force to seize Saudi Arabia’s oil fields to break an embargo as a way of pressuring the kingdom. There is no doubt that diplomatic factors have sometimes played a role in Saudi oil policy. King Faisal openly employed oil as a political instrument in the form of said embargo in 1973 in an (unsuccessful) attempt to change U.S. policy toward Israel. In the 1980s, King Fahd reportedly ordered extra oil sales to pay for an arms deal with Britain.

Historically, big shifts in oil prices sometimes have significant economic, political, diplomatic and military consequences. Russian economist Yegor Gaidar has argued the collapse in oil prices in the mid-1980s was responsible for the dissolution of the Soviet Union. It occurred because the high prices of the late 1970s and early 1980s had stimulated a huge increase in non-OPEC supplies and massive fuel conservation in the advanced economies.

Over the last months the oil market has been torn between conflicting statements. Most recently, Qatar’s government announced that it would host a meeting on April 17 in Doha for oil producers both inside and outside OPEC to discuss a freeze of crude production. At an earlier ministerial meeting of the “oil quartet” in Qatar last month, Saudi Arabia and Russia together with Venezuela and Qatar expressed readiness to freeze oil output at the level of January 2016.

It is widely expected that 2015 will turn out to be the last year of production growth for Russia’s oil industry — the government has already admitted that production will fall this year and by 2035 it may decline at major fields by as much as 34.5 percent. The same is likely to be true for Venezuela which is on the brink of a default and which, along with Russia, is the driving force behind the “quartet”. In such circumstances some of the worst affected petro-states may jump onto the bandwagon in April. They may think that it is better to present an imminent fall in production as part of a cunning geopolitical arrangement than to acknowledge that it’s the result of a worsening domestic economic crisis.

But the Iran opposed it and opted to boycott entirely. One of the reasons is that Iran has already said that it plans to ramp up production, aiming to export an additional million barrels per day into global markets within six months — a move that its oil minister says is “not seeking to disrupt the market,” but instead help Iran regain lost market share.

A series of diplomatic skirmishes between Tehran and Riyadh has intensified the long simmering tensions between the two heavyweights of the Persian Gulf regarding this issue. The bitter clash over regional influence and energy policy parallels with striking similarity a stretched clash between the two rivals three decades earlier, which generated a destructive spiral of violence and economic hardship for both countries.

The current Iranian-Saudi blaze is already more dangerous than the original, as the fallout from the conflict has been felt across the region in the devastating wars in Syria and Yemen. And in contrast to the 1980s, when it was the promising Islamic Republic whose ideological imperatives frustrated efforts at de-escalation.  To understand Saudi reluctance to cut production look no further than 1981-1986, the deepest oil price collapse in history. Prices dropped 3.6 times — the current decline is close to this mark but has not yet broken the historical record. The Saudi Kingdom attempted to single-handedly pull the entire world out of the price slump by cutting production to a record low.

Two major powers of the world are playing the game very wisely. Russia is behind this “Oil Freeze Proposal” at one hand and Saudi Arabia is more willing to accept it but on the other hand the lifting of the economic sanctions and trade marked the way for Iran to go ahead with the USA strength to oppose any plans of the other party. The divide is so clear.

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Shahzadi Tooba Hussain Syed

Shahzadi Tooba Hussain Syed works at Strategic Vision Institute in Islamabad. He can be reached at Shahzadisvi@gmail.com

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