Oil Prices and Saudi Options in Iraq

An adjunct fellow at the Center for Strategic and International Studies (who is also an advisor to the government of Saudi Arabia, BTW) offers some fascinating insight into the political economy of oil prices in the Middle East. Writing in the Washington Post, Nawaf Obaid explains that if the United States cuts-and-runs from Iraq, the Saudis will not stand idly by if either the Shi’ite dominated government of Prime Minister Nouri al-Maliki or any of Iraq’s various Shi’ite militias embark on an ethnic cleansing campaign against Iraq’s Sunnis (h/t Rich Lowry). Because of their oil wealth, the Saudis have a number of options…

Options now include providing Sunni military leaders (primarily ex-Baathist members of the former Iraqi officer corps, who make up the backbone of the insurgency) with the same types of assistance -- funding, arms and logistical support -- that Iran has been giving to Shiite armed groups for years.

Another possibility includes the establishment of new Sunni brigades to combat the Iranian-backed militias. Finally, [Saudi Arabia’s King Abdullah] may decide to strangle Iranian funding of the militias through oil policy. If Saudi Arabia boosted production and cut the price of oil in half, the kingdom could still finance its current spending. But it would be devastating to Iran, which is facing economic difficulties even with today's high prices. The result would be to limit Tehran's ability to continue funneling hundreds of millions each year to Shiite militias in Iraq and elsewhere.

Remember, Saudi manipulations to lower oil prices would serve a second Saudi objective, lessening the urgency being felt in much in the United States for developing oil alternatives -- alternatives that could permanently lower the price of Saudi crude.

Then again, both motivations -- impeding Iran and stifling interest in new energy sources -- already justify a Saudi-engineered oil price drop, so it has to be asked why it hasn't happened already. (Certainly, there has been a drop over the past few months, but Mr. Obaid's article suggests that the Saudi domestic economy could easily absorb an even further decline). Could it be that it is important for the Saudis to see the US defeated, necessary to assauge domestic political considerations, before they take action?

Finally, including Saudi Arabia's long-term interests in the picture perhaps makes the refusal of Prime Minister Maliki to confront Iraq's Shi'ite militias just a tad more understandable. Knowing the Saudis are ready to surge aid to the Sunnis the moment the U.S leaves, he may already be preparing for his next war against a Saudi/Iraq Sunni alliance, if he believes that the United States is now destined to abandon him in his current war.