The immediate cause of the new energy crunch is obviously the expected plunge in Iranian supplies. Recent reports suggest Iran is already reducing production levels in anticipation of reduced demand in the wake of tightening sanctions.
Under other circumstances the Saudi government might have focused on the financial benefits of rising energy prices, but in this case the political context left the Saudis no choice but to fight the market trend, as they are at odds with Iran no less, in some ways even more, than Israel is.
The Saudi response was resolute, at least verbally. “We are ready and willing to put more oil in the market,” said Oil Minister Ali al-Naimi.
The only problem was that the markets, as they often do in the face of artificial intervention, remained unimpressed. The Saudis therefore intensified the rhetoric.
Rising prices were not justified, said al-Naimi, considering that the global economy, in his view, had yet to emerge from the recession of recent years.
And after saying that the kingdom was ready to raise output to full capacity, the minister quipped that “oil prices today are unjustifiable on a supply-and-demand basis,” an insight that made him reprimand the unruly markets in exasperation: “We really don’t understand why the prices are behaving the way they are.”
Root of the misunderstanding
Where, then, is the root of the misunderstanding between the Saudis and the markets?
One place might be in the state of the global economy. Maybe the Saudis are wrong in assuming that the Great Recession has not ended. Maybe Chinese and Indian demands are returning to the pre-meltdown levels that helped drive prices up more than 500% within half a decade.
Maybe the dissonance is within the energy markets, where not all share Riyadh’s confidence that it can fill in for missing Iranian shipments. Maybe the discrepancy lies within Saudi Arabia itself, where some perhaps doubt that brave rhetoric, even the Saudi oil minister’s, automatically translates into actual deliveries. And maybe the markets doubt Riyadh’s denials early March of terrorist explosions in one of its oil fields
Be all these circumstances as they may, the deeper story here is that for the first time since the Arab upheaval began, the Saudis tried to play leaders and the markets refused to treat them as such.
Saudi Arabia has remained relatively quiet, while the rest of the Arab world has been caught in the worst turmoil since the end of the colonial era.
While Egypt democratized, Iraq split in three, Syria plunged into civil war, Libyans lynched Qaddafi and Yemenis and Tunisian drove their leaders into exile, Saudi Arabia generally managed to keep above the fray.
