The price of oil fell to less than £47 a barrel on Friday last week, its lowest level in more than a year. A couple of months ago it had reached a four-year high of £67 a barrel. Of course, markets are supposed to go up and down.
But oil is what the political scientist Simon Bromley calls a “strategic commodity”, a source of political power. The recent see-sawing of the oil price has a lot more to do with politics—particularly geopolitical competition among states—than economics.
More specifically, it has to do with Donald Trump’s Middle East policy. He wants to isolate and weaken the Iranian regime. So he denounced the international agreement that his predecessor Barack Obama reached with Tehran over its nuclear programme. He also reimposed economic sanctions on Iran.
It was the return of sanctions that triggered the rise in the oil price, due to fears that these would lead to a fall in Iranian oil exports. But Trump is very anxious to achieve lower oil prices, to please gas-guzzling conservative voters.
So the US has allowed eight states to continue to import limited amounts of Iranian oil. Even so, Iranian oil exports fell from 2.8 million barrels a day in April to less than 1.8 million in October. Another oil producer would have to pick up the slack and increase its output.
Traditionally this role has been played by Saudi Arabia. Since taking office Trump and his son-in-law and Middle East supremo Jared Kushner have drawn very close to the ambitious Saudi crown prince Mohammed bin Salman (known as MBS). They see him as a key ally against Iran and fantasise that he can help them to bring peace to Israel and Palestine.
MBS’s opponents in the ruling family had started to circle round him. But then Trump came to the rescue
But now MBS is in big trouble. The brutal assassination of the moderately critical journalist Jamal Khashoggi in the Saudi consulate in Istanbul in Turkey has put under the spotlight the reckless policies MBS has pursued since taking control of the Kingdom in 2015.
These include a devastating war in Yemen, an anti?corruption drive that served to shake down the Saudi rich and remove his political rivals and the kidnapping of the Lebanese prime minister.
MBS’s opponents in the ruling family had started to circle round him. But then Trump came to the rescue. Just after the CIA had reached the judgement with “high confidence” that MBS had ordered Khashoggi’s murder, Trump issued a rambling statement. “It could very well be that the Crown Prince had knowledge of this tragic event—maybe he did and maybe he didn’t,” it said
He quoted MBS’s description of Khashoggi as “an enemy of the state”, argued that Saudi Arabia was a “great ally” against Iran, and claimed that “the Kingdom agreed to spend and invest £350 billion in the United States.” This figure is highly disputed, but probably more significant is Trump’s praise for the Saudis for having “been very responsive to my requests to keeping oil prices at reasonable levels”.
And indeed the Saudis, desperate for US support, have pushed oil output up nearly 11 billion barrels a day, even though they need an oil price of at least £62 a barrel for their budget to balance. The Financial Times commented that Trump “should hold the whip hand over Riyadh at this stage”.
Roula Khalaf, the paper’s deputy editor, has expressed her anger at “Donald Trump’s Saudi Arabia First policy”. But she reflected, “Ever since Ibn Saud, the founder of modern Saudi Arabia, met Franklin D Roosevelt on board the USS Quincy in 1945, the relationship has been based on narrowly defined interests—Saudi Arabia ensures the steady flow of oil and recycles its petrodollars, and the US secures the kingdom’s survival. Human rights never featured in the equation.”
Human rights aren’t the only casualty. The US-Saudi alliance keeps greenhouse gases pumping into the atmosphere. As the oil price hit a new low, the White House dismissed a report by its own government experts warning that climate change will cost the US hundreds of billions of dollars and cause thousands of deaths a year unless there is a global shift to a carbon-free economy.