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Saudi Oil Threat To Iran Rings Hollow

Saudi King Abdullah bin Abdul Aziz al-Saud (right) greets Iranian President Mahmud Ahmadinejad in Riyadh in November 2007.
Saudi King Abdullah bin Abdul Aziz al-Saud (right) greets Iranian President Mahmud Ahmadinejad in Riyadh in November 2007.
By Robert Tait
When Saudi Arabia's one-time intelligence supremo warned that Riyadh was considering using its vast oil wealth as a weapon against neighboring Iran, it appeared that the lingering cold war between the two rival Gulf powers was about to heat up.

The grim portent was served by Prince Turki al-Faisal, who warned that the Saudis could flood the international oil markets to bring down the price of crude unless Tehran halted its controversial nuclear program.

"Iran is very vulnerable in the oil sector, and it's there that more could be done to squeeze the current government," "The Wall Street Journal" quoted Faisal -- a senior member of the Saudi royal family -- as telling a private gathering of United States and British military officers in June.

Saudi Arabia, he went on, was ready to replace Iran in the international oil market -- thus depriving Tehran of the vital revenues it needs to keep its fragile economy afloat and to fund its uranium-enrichment activities, which Riyadh and the West suspect is a front for building a nuclear bomb.

"To put this into perspective, Saudi Arabia has so much [spare] production capacity -- nearly 4 million barrels per day -- that we could almost instantly replace all of Iran's oil production," Faisal said.

Growing Hostilities

Faisal once headed Saudi Arabia's intelligence agency but now holds no official government office. Saudi officials have said his comments were made purely in a private capacity.

Yet they articulated the hostilities between the two neighbors, which have grown during this year's Arab Spring, a period in which Saudi troops deployed in Bahrain to help snuff out a Shi'ite revolt that Riyadh claims -- despite Iranian denials -- has been fomented by Tehran.

Iranian students participate in a demonstration to oppose the presence of Saudi troops in Bahrain, outside the Saudi Embassy in Tehran on May 3.

And according to Meir Javedanfar, an Iranian commentator with the Israel-based Middle East Economic and Political Analysis Company, Faisal Turki was also illustrating Saudi Arabia's assumed role of being the spearhead of an economic attack on Iran.

"The Saudis are now heading an international campaign to weaken Iran's economy and to stop the nuclear program. Whereas the Americans are the ones that are imposing sanctions on different parts of the economy," Javedanfar says, "the Saudi are the ones who are basically going for the jugular.

"They are going for Iran's oil industry by going to Iran's customers, such as India and saying, 'Don't buy oil from Iran; you can buy oil from us and we can basically give it to you at a better price.' They want to flood the market to bring the price of oil down. They know that Iran is vulnerable because 80 percent of the country's income comes from oil."

Iran, which currently holds the presidency of the Organization of Petroleum Exporting Countries (OPEC), hit back angrily.

"Iran will stop any move designed to play with oil prices through production hikes," the country's caretaker oil minister, Mohammad Aliabadi, said after Faisal's comments were made public.

The Iranians already blocked a Saudi effort to increase production at the last OPEC meeting in Vienna on June 8.

Indulging In Hyperbole

Yet while there is general agreement that Iran's overreliance on oil revenues is an Achilles heel, not everyone is convinced that Riyadh's threat would have the effect of crippling Islamic regime economically.

Kamran Dadkhah, associate professor of economics at Northeastern University in Boston, says Saudi Arabia -- despite being OPEC's biggest oil producer -- is indulging in hyperbole by believing it can bring Iran to its knees.

"Saudi Arabia is, indeed, the only OPEC member with spare capacity and excess capacity and financial resources to manipulate the oil markets," Dadkhah says. "But to bankrupt Iran through this process is a wrong statement.

"If you flood the market with oil, OK, the price of oil will come down. [But the] Iranians will sell at a lower price. Iran has sold at $9 a barrel at times, and there is no reason that it is the Iranian oil that will be replaced. It may be some other oil producer that has to cut down on their supply because the price has come down or even [whose] customers will be replaced."

Moreover, according to Dadkhah, Iran could afford to fund its nuclear program with oil prices much lower than the $108.19 a barrel of Brent crude was fetching on June 28.

"Iran doesn't need all the money it is getting now just to go with the nuclear program," he says. "Even a part of it would be enough to finance that."

Countering Faisal's threat is Iran's retaliatory capability. It is, as Dadkhah points out, capable of causing "mischief" in response to any hardships imposed on it, not least by encouraging restiveness among Shi'a populations in Arab Gulf states, including Saudi Arabia itself. As a last resort, Tehran also has the option of firing at oil tankers passing through the Gulf and of sabotaging oil and gas pipelines.

Such considerations are unlikely to have been lost on the Saudis -- meaning Faisal's remarks probably carried a strong element of psychological warfare.

Gerd Nonneman, professor of Gulf studies at Exeter University in England, believes the comments were intended as a display of Saudi Arabia's potential power which, in practice, the kingdom's ruling dynasty would be reluctant to use.

"[Flooding the market] is not quite a nuclear option," Nonneman says, "but [Saudi Arabia] really puts itself out there. I think they also wouldn't simply want to be doing a free favor to the U.S. and the West without being taken seriously otherwise. So I think it's a balancing game. They were considering upping their production very significantly. In fact, they are going to up it by at least half-a-million barrels a day. Whether they were going to go further, that would expose them further in a number of ways. That's why Prince Turki, rather than any official, was used to put this idea out there. It's a kind of trial balloon."
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Comment Sorting
Comments
     
by: Jack from: US
June 30, 2011 00:20
Saudi Arabia is the major financier of Muslim extremists and terrorists throughout the world. Jew-controlled US government, which is allied with Saudis, tries to deflect attention from terrorist activities by Saudis and instead claims Iran is the main sponsor of terrorism. Iran has been itself a victim of Wahhabi Muslim terrorists and Iran is the only Muslim country which has some level of democracy with truly competitive elections. Jew-controlled US government puts up lies upon lies and probably thinks people are stupid enough to believe it. The only ones who believe US government propaganda are Texas rednecks.
In Response

by: Ilya
June 30, 2011 11:25
Is this guy a Nazi, a Marxist, or an Islamist? It's so hard to tell the difference these days.
In Response

by: American from: USA
June 30, 2011 13:14
Iranian.
In Response

by: Zappa
June 30, 2011 16:01
Islamist?
Nah, he is a Shiite. Most likely Iranian.
In Response

by: Poyani from: Canada
June 30, 2011 18:01
Arguing that Jews and Muslims are secretly controlling the world? Sounds like a Republican to me.
In Response

by: Prague Guy from: Prague
June 30, 2011 15:46
Sorry to burst your bubble Jack, but this Texan does not believe "government propaganda." I only believe the facts from my government as reported by RFE/RL ;)
In Response

by: Prague Guy from: Prague
July 01, 2011 07:11
Jack, Happy 4th of July! Just wanted to make sure that you understand that I am really "Texas Guy" a very Proud American whose hair's turning White, my neck's always been Red, and my colar is still Blue! You know, if you do not like the US, you are Alway FREE to Leave!

by: Paul from: Toronto
June 30, 2011 18:10
March 2002 - Israel invades West Bank - Iraq and Iran propose oil boycott - Saudi Response is as follows (reported by tonnes of news sources)

"Oil is not a weapon. Oil is not a tank" Saudi Foreign Minister Prince Saud al-Faisal said as he not only rejected the embargo, but increase productions to offset Iranian and Iraqi boycotts.

Welcome to Capo country! These guys take the concept of treason to a whole new level!
In Response

by: No Russian
July 01, 2011 02:36
Really? Some facts please

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