Petro-Leverage

Posted by Cutler on May 25, 2007
Iran, Saudi Arabia

In a recent interview with the Financial Times, Benjamin Netanyahu was asked about Arab-Iranian tensions in the Gulf:

FT: Does the fear many Arab regimes feel for Iran create a strategic opportunity for Israel?

BN: Categorically yes.

So, how much fear do Arab regimes feel for Iran?

It probably depends on the regime.  But I would argue that Saudi King Abdullah is not playing Netanyahu’s game.

The clearest sign of Saudi support to the Iranian regime is the current price of oil.

As I noted in a January 2007 post, Washington Post columnist Jim Hoagland reported that the Bush administration was seeking to use oil as a weapon to leverage concessions from Iran:

The campaign received a big boost last week when it became clear that Saudi Arabia is finally worried enough about Iran to use oil as a weapon against the regime of President Mahmoud Ahmadinejad. Saudi oil minister Ali Nuaimi publicly opposed Iranian calls for production cuts by the OPEC cartel to halt a decline that has taken crude oil from $78 a barrel in July to just above $50 a barrel last week.

The Saudis have enough reserve production capacity to swing OPEC prices up and down at will. Their relatively small population gives them a flexibility in postponing revenue gains that populous Iran lacks. Nuaimi’s pronouncement, although cast as a technical matter that had nothing to do with politics, seemed to give teeth to recent warnings issued in private by Prince Bandar bin Sultan, the Saudi national security adviser, that the kingdom will now respond to Iranian hostility with its own confrontational tactics.

That was way back in January.  Today, the price of crude is back up to new highs.

Some of that is a “geopolitical premium” paid because of rising tensions between the US and Iran.  But, as the Wall Street Journal reports, the price hike is also a consequence of OPEC–especially Saudi–policy.

Two years ago when gasoline prices in the U.S. surged to the then-lofty level of $2 a gallon, the Organization of Petroleum Exporting Countries sprang into action, seeking to provide relief by pledging to boost oil production.

Now, with gasoline topping an average of $3.20 a gallon nationwide, OPEC officials say they see no reason to open the oil spigot wider.

The Journal article emphasizes OPEC jealously over the profits of American oil refiners.  I suspect there is something more geopolitical in the Saudi refusal to flood the markets with crude.

An Associated Press report suggests that Iran is one of the key beneficiaries of current OPEC policy:

Consistently high oil prices over the past few years have left Iran awash in petroleum money.

The current price of oil is Saudi King Abdullah’s gift to the Iranian regime.

Petro-leverage, under the circumstances, only go so far.

There are only two other forms of leverage: floating leverage (USS John C. Stennis) and political leverage (the threat of a so-called “velvet revolution”).

After that, there is only US accommodation and an alliance with the incumbent regime.

John Bolton made headlines recently by suggesting that the US “attack” Iran.

Here is the “money quote” from Bolton:

Mr Bolton said: “It’s been conclusively proven Iran is not going to be talked out of its nuclear programme. So to stop them from doing it, we have to massively increase the pressure.

“If we can’t get enough other countries to come along with us to do that, then we’ve got to go with regime change by bolstering opposition groups and the like, because that’s the circumstance most likely for an Iranian government to decide that it’s safer not to pursue nuclear weapons than to continue to do so. And if all else fails, if the choice is between a nuclear-capable Iran and the use of force, then I think we need to look at the use of force.”

Most of the attention has focused on Bolton’s support for the “use of force.”  But the real story may be the way Bolton talks about “regime change.”  He talks about “bolstering opposition groups and the like” but then doesn’t even seem able to convince himself that the end game of “regime change” is actually in the cards.

Instead, Bolton appears to suggest that the threat of regime change would convince “an Iranian government to decide that it’s safer not to pursue nuclear weapons.”

Is that “an” (eternal) Iranian government that would make that decision?  Or is it the (incumbent) Iranian government?

Cheney may have already decided that it is the (incumbent) Iranian government.

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