Bush Seeks Quick Fix to Tame Oil Prices

On his arrival in Riyadh on January 15th, President Bush urged Saudi king Abdullah to put more crude oil on the world market, warning that soaring prices could cause an economic slowdown in the United States, and weaken the housing market.

“High energy prices can damage consuming economies. When consumers have less purchasing power, it could cause the economy to slow down. I hope OPEC nations put more supply on the market. It would be helpful,” he said.

Saudi Arabia is the only member of OPEC with spare capacity - roughly 2.8 million barrels per day. Saudi Oil chief Ali al-Naimi said on Jan 15th, that Riyadh is ready to boost oil output if the market needed more oil to tame high prices.

“Nobody would look with pleasure on a recession in the United States. Concerns about US economic growth are valid. But the price of oil is more than just the US economy. Global economies are growing despite oil prices ranging between $90 and $100 a barrel,” Naimi said. For instance, China’s oil imports rose 12% last year to a record 3.26 mil bpd.

But al-Naimi also blamed speculators in London and New York for inflating the price of crude oil by $20 to $30 per barrel. “Twenty to thirty dollars is the outside influence on the price of oil. If you look at who’s in the market, you’ll find a lot financial institutions are speculating, using the market as a hedge.” Still, Naimi wouldn’t say if Riyadh would agree to boost oil output at OPEC’s Feb 1 meeting.

King Abdullah must walk a along a tightrope, balancing his military patron’s request for more oil, against Iran’s opposition to further increases in output, which could hurt Tehran’s oil revenue. On Dec 5th, Iran’s President Mahmoud Ahmadinejad scored a big victory, when he convinced king Abdullah to join the hawks of OPEC – Iran, Libya, and Venezuela, and hold the cartel’s oil output steady at 27.25 million bpd.

“Our position is that demand and supply are balanced and there is no need to increase oil to the market,” said Iranian Oil Minister Gholamhossein Nozari. Still, the key question is which way will Saudi oil policy lean at the upcoming Feb 1st meeting in Vienna, in favor of US Prez Bush or Iran’s Ahmadinejad?

However, Riyadh is keen to keep oil prices elevated within a higher target zone, to sustain the enormous flow of petro-dollars to the Gulf, which has revived the speculative appetite for the local stock market. The Saudi All Share Index hit the psychological 12,000 barrier last week, enriching the brokerage accounts of 7,000 Saudi princes, who control 70% of the market.

Also, “OPEC needs to be cautious ahead of the seasonal drop in consumption in the second quarter and because of the possible effect on oil demand of a US economic recession,” said Qatar’s influential oil minister Abdullah al-Attiyah on January 16th. “I don’t think the market needs more oil. The recent drop in oil prices shows that there was no shortage of supply,” he explained.

Bush Offers $20Bbillion Arms Deal for More Saudi Oil

In a keynote speech in Abu Dhabi on January 13th, US President George Bush reminded the leaders of the oil kingdoms of what he called the threat to the world posed by Tehran. “Iran seeks to intimidate its neighbors with missiles and bellicose rhetoric, and its actions threaten the security of nations everywhere. So the United States is strengthening our longstanding security commitments with our friends in the Gulf to confront this danger before it is too late,” he warned.

The underlying message is simple, in return for American military protection against Iran, the Bush clan expects the Arab oil kingdoms to stick with their archaic dollar pegs, and recycle much of their oil surplus into US Treasuries. To keep the Saudi petro-dollars flowing into US Treasury debt, Bush offered Riyadh a $20 billion package of advanced weaponry, to shore up their defenses against Iran.

Still, Saudi Arabia and other Gulf Arab states are looking beyond the last 12-months of the Bush presidency, and are determined to maintain good relations with Iran, which might only be a few years away from acquiring nuclear weapons.

“We’ll listen to everything the president says. He can raise any issue he likes. We’re a neighbor to Iran in the Gulf, which is a small area, so we’re keen for harmony and peace among countries in the area,” said Foreign Minister Saud al-Faisal.

Saudi Arabia invited Iran’s Ahmadinejad to the Haj in Mecca in December and Qatar invited Ahmadinejad to a summit of the Gulf Cooperation Council [GCC] last month

Bush spoke with the Saudi king in his opulent palace. Its marble floors and walls contain sheets of gold, colored with precious stones and embedded jewels. The king also invited Bush to his lavish horse farm where 150 Arabian stallions are stabled, as a payback to his visit to the Bush ranch in Crawford, Texas.