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Oil as a geopolitical weapon: US hegemony, OPEC, Saudi Arabia, and the petrodollar

Multipolarista host Ben Norton and historian Aaron Good discuss how oil is used as a geopolitical weapon, analyzing the 1973 OPEC oil embargo, Saudi-US alliance, petrodollar, Nixon shock and Volcker shock, and Washington-orchestrated 2014 oil crash.

oil geopolitical weapon US Saudi Arabia

Multipolarista host Ben Norton is joined by historian Aaron Good to discuss how oil is used as a geopolitical weapon, analyzing the 1973 OPEC oil embargo, Saudi-US alliance, petrodollar, Nixon shock and Volcker shock, and Washington-orchestrated 2014 oil crash.




In 2014, Secretary of State John Kerry traveled to Riyadh, where the US and Saudi Arabia made a deal to crash the oil market in order to hurt top crude producers Russia, Iran, and Venezuela.

Reuters reported in a June 2014 news wire titled “Kerry, Saudi King discuss oil supply, U.S. official says“:

U.S. Secretary of State John Kerry and Saudi King Abdullah briefly discussed global oil supplies during a meeting on the crisis in Iraq on Friday, a senior State Department official said.

During the talks, Kerry referred to recent comments by a Saudi oil official that the world’s largest oil producer would increase supplies should crises in Iraq or Syria disrupt supplies, the official said.

“The secretary noted positively a recent statement from an oil official in the kingdom reflecting the kingdom’s desire to do what will be required in the event of any turbulence,” said the State Department official, who briefed reporters on the talks.

In November 2014, The Guardian followed up with an article by the top British newspaper’s economics editor, Larry Elliott, titled “Stakes are high as US plays the oil card against Iran and Russia,” which stated:

Washington is trying to drive down prices by flooding the market with crude but risks collateral damage to its own shale industry

The fourfold increase in oil prices triggered by the embargo on exports organised by Saudi Arabia in response to the Yom Kippur war in 1973 showed how crude could be used as a diplomatic and economic weapon. History is repeating itself.

Think about how the Obama administration sees the state of the world. It wants Tehran to come to heel over its nuclear programme. It wants Vladimir Putin to back off in eastern Ukraine. But after recent experiences in Iraq and Afghanistan, the White House has no desire to put American boots on the ground.

Instead, with the help of its Saudi ally, Washington is trying to drive down the oil price by flooding an already weak market with crude. As the Russians and the Iranians are heavily dependent on oil exports, the assumption is that they will become easier to deal with.

John Kerry, the US secretary of state, allegedly struck a deal with King Abdullah in September under which the Saudis would sell crude at below the prevailing market price. That would help explain why the price has been falling at a time when, given the turmoil in Iraq and Syria caused by Islamic State, it would normally have been rising.

The Saudis did something similar in the mid-1980s. Then, the geopolitical motivation for a move that sent the oil price to below $10 a barrel was to destabilise Saddam Hussein’s regime. This time, according to Middle East specialists, the Saudis want to put pressure on Iran and to force Moscow to weaken its support for the Assad regime in Syria.

Turning on the oil spigots comes at a cost. The Saudis, like all other producers, have become accustomed to oil above $100 a barrel. The Arab spring in Libya and Egypt raised fears that the political unrest would spread. Oil revenues financed higher public spending, so Saudi Arabia needs the price to be above $90 a barrel to balance the books.

But a bit of pain is acceptable. The Saudis are gambling that they can live with a lower oil price for longer than the Russians and the Iranians can, and that therefore the operation will be relatively short-lived.

There is no question that this new manifestation of cold war muscle is hurting Russia. Oil and gas account for 70% of Russia’s exports and the budget doesn’t add up unless the oil price is above $100 a barrel.

The 2019 Al Jazeera documentary “Saudi Aramco: The Company and the State” features an interview with energy researcher Jim Krane, at 16:07, who explains:

Saudi Arabia is the keystone in OPEC; it is the big dog. It’s the ringleader, if you will within OPEC.

OPEC members maintain a little bit here and there. None has more than 1 million barrels per day of spare oil production capacity, that I know of, that maintains that kind of level of spare capacity as policy.

Saudi Arabia, Saudi Aramco, typically maintain a million, 2 million barrels a day of oil production capacity that they don’t use.

No profit-oriented firm would ever do this, right. You wouldn’t invest all the billions in developing oil fields, and pipelines, and storage facilities, and production infrastructure, and then just leave it dormant.

Saudi Aramco has done it at the behest of the Saudi state. And it’s the key aspect in the Saudi-US partnership, Aramco’s ability to bring more oil production online, and its willingness to cut back at times the markets are oversupplied.

It’s kind of the crux of the US-Saudi strategic partnership.

After, Al Jazeera featured a quote from former US President Donald Trump, who stated openly:

Saudi Arabia, if we broke with them, I think your oil prices would go through the roof. I’ve kept them down; they’ve helped me keep them down. Right now, we have low oil prices, or relatively; I’d like to see it go down even lower.

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