The Saudi Two-Step

With the passsing of King Fahd, the spotlight is on those two long term dance partners, Saudi Arabia and the good ole US of A.

Abdullah, seen here having the ticks removed from his moustache by some flunky, has effectively been running the country since 1995, when Fahd was laid low by a stroke. He took over on the old king's death and his brother Sultan has taken the role of Crown Prince.

Also of note in Saudi politics has been the removal of Prince Bandar from the US ambassadorship (remember him? He was the one who smoked cigars on the white house balcony and was generally regarded as one of the most consumate political fixers of modern times.) He has been replaced by his uncle, Prince Turki bin Faisal, who used to run the Saudi intelligence service and was recently the ambassador to the UK.

So, what can we expect from the reign of Abdullah. Much of the same seems to be the consensus. But is that just wishful thinking? Let's examine the pressures on the mystery kingdom.

Saudi Arabia is going through what is euphimistically referred to as demographic transition. This is code for a steep population increase engendered by falling death rates and high birth rates. Their are huge numbers of young Saudis under the age of 21 (half the population in fact), and more every year. This contrasts sharply with the current rulers. Abdullah is a spritely 82 (don't let the dyed facial hair fool you) and the next two likely successors are of a similar vintage.

The abundance of disenfranchised, disillusioned young men has swelled the ranks of extremist groups in the kingdom and throughout the world. Much of the religious framework that supports these firebrands is funded by the royal family or other wealthy Saudis. For years, money has been given to men like Sheikh Osama to fight the good fight for ultra-conservative Islam in places like Afghanistan, and now Iraq.

But the Saudis have had their hands bitten by the monster they created. Since the invasion of Iraq there have been a number of high profile terrorist attacks inside the kingdom, targetting foreigners and the oil industry. There have been accusations that the security forces are sympathetic to the cause of extremists. In some ways it would be more surprising if they weren't.

And, as we all know (I would hope), the oil markets are in a bit of a state at the moment. For the last thirty years Saudi Arabia has been the go-to player in the oil market. They have long held the ace of a significant amount of spare production capacity. But for the last two years, despite rising prices, Saudi Aramco have incremented their production by only a fraction. OPEC announcements of upwards revisions of quotas are now barely even acknowledged by the market.

Investment banker Matthew Simmons has just published a book alleging (and has been telling anyone who will listen for several years now, including Dick Cheney) that the Saudi fields are not in the great shape they had always said they were. His argument has been met with stern rebuffs from Saudi officials, but the debates about Saudi and world oil peak are now hitting the pages of major dailies.

It has become uncomfortably obvious that the United States is cravenly beholden to one of the most repressive and undemocratic regimes in the world. Realpolitik and an insuperable addiction to oil has left America in a terrible strategic position. They are bound to prop up the aging leaders and their corrupt families while trying to gently bring about meaningful change that may lessen the grip of extremist ideologies.

If Simmons is correct and Saudi oil production does soon reach its historical maximum, only to start declining, then this dance will surely become a death grip.

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Energy Decline