by Gal Luft
August 8, 2003
Published by the Near East Report
Saudi Arabia, which has demonstrated its willingness
to use its vast oil reserves as a foreign policy tool, has not acted to aid U.S. efforts to rebuild Iraq.
Contrary to frequent assertions that Saudi Arabia is a loyal U.S. ally,
Riyadh has pursued policies and taken actions that have caused grievous
harm to vital American interests.
Apart from being a hotbed of Islamic radicalism and a source of terrorist
funding, Saudi Arabia is known as the home of a quarter of the world’s
oil reserves and supplier of about one-sixth of U.S. oil imports.
Saudi Arabia’s ability to produce a spare capacity of oil
is the linchpin of its foreign policy
What gives the oil kingdom political strength is its role as the world
oil market’s swing producer. It is the only oil producer with significant
spare capacity—an extra 2.5 million barrels per day (mbd) that can
be pumped into the market when other suppliers falter.
Spare capacity has become the linchpin of Saudi diplomacy. Foreign Affairs
magazine defined it as “the energy equivalent of nuclear weapons,
a powerful deterrent against those who try to challenge Saudi leadership.”
The Saudis have demonstrated time and again their readiness to use their
spare capacity to create a glut and have prices collapse in order to destroy
exports from countries challenging their dominance.
Saudi oil policy has been designed to preserve stability in the oil market
at a relatively high price while enjoying the benefits of being a top
supplier to the United States. To maintain its influence over Washington,
Riyadh provides a hidden subsidy of roughly $1 per barrel of Saudi crude
sold in the United States. In return, Washington provides for the defense
of the kingdom.
The House of Saud has used its oil power to influence U.S. Middle East
policy toward Israel. This was done thirty years ago during the Yom Kippur
War when the Saudis, enraged by President Nixon’s decision to ship
arms to Israel, decided to cut oil supply to the United States, bringing
about the worst economic slump since the Great Depression. Last year,
The New York Times reported that senior members of the Saudi royal family
discussed reusing the oil weapon in response to Israel’s Operation
Defensive Shield in the West Bank.
Furthermore, U.S. presence in the kingdom has become a lightning rod for
Islamic fundamentalism and anti-Americanism, leading groups like al-Qaeda
to attack U.S. interests worldwide. Consequently, since the Sept. 11 attacks,
there has been a growing American public demand to displace Saudi Arabia
as the main source of U.S. oil in the Gulf. The victory over Saddam Hussein
enables the United States to do so by developing Iraq’s vast oil
fields. With a stable political situation and a large investment, Iraq
might be able to pump up its production from 3.2 mbd prior to the 1991
Gulf war to 6 mbd by 2010.
Saudi Arabia’s dominance of the energy markets would be threatened
by an oil-producing Iraq
The House of Saud is deeply concerned about internal political destabilization
from a democracy-seeking Iraq and even more about increased Iraqi oil
production. Undoubtedly, Saudi Arabia is likely to be the main casualty
if Iraq joined the small club of giant producers—especially if Iraq
is able to create spare production capacity to cut into Saudi Arabia’s
near-monopoly. Saudi production quota stands at about 8 mbd of OPEC’s
25.4 mbd total. A gradual increase in Iraq’s quota would have to
come at the expense of Saudi Arabia. This is something Riyadh fears.
Heavily in debt, burdened by high unemployment, lavish stipends to more
than 10,000 princes and hush-money to its religious establishment, while
solely dependent on oil income for its economic well-being, the House
of Saud cannot sustain a drop in revenues. Saudi per capita GDP has dropped
from $18,000 in 1980 to about $7,500 today. Decline in oil sales due to
Iraqi production could further decrease it to about $3,000 by 2010.
The kingdom has not acted against Islamic radicals, whose attacks
have hampered the rebuilding of Iraq
One way Saudi Arabia can prevent the emergence of Iraq’s oil industry
is by creating an inhospitable investment climate in Iraq, deterring international
oil companies from rebuilding the country’s oil infrastructure.
In the past few months, hundreds of Saudi radicals have crossed the border
into Iraq in preparation for a jihad against the United States.
These Islamist militants are concentrated in the Sunni area near Falujjah
and together with remnants of Saddam’s regime they have launched
attacks on oil pipelines and refineries, preventing Iraqi oil from coming
back online and denying Iraq the much-needed funds for its reconstruction.
The latest attack on Aug. 16 on a pipeline from Kirkuk to the Turkish
Mediterranean terminal of Ceyhan costs Iraq’s tottering economy
$7 million per day.
Without oil revenues, Iraqis will soon be disillusioned with the United
States’ ability to rebuild and reform their country and the American
public might become frustrated by the huge cost inflicted on the U.S.
Though the Saudi government often claims to be a close ally to the United
States, its actions indicate this outcome is precisely what it is hoping
for. It has not lifted a finger to seal the border to block the surge
of jihadists to Iraq, and certainly has done nothing to help rebuild Iraq’s
vital oil industry. Indeed, the kingdom believes it is in its best interest
to have the radicals fight the United States outside the country rather
than destabilize the regime from within.
The Saudi complicity in the actions of its citizens in Iraq undermines
the U.S. strategic objective of promoting peace and democracy in the Middle
East. Behavior that increases the military burden coalition forces in
Iraq are facing while undermining the United States’ economic recovery
is the last thing expected from a perceived ally.
Dr. Luft is executive director of the Institute for the Analysis of Global