Shadow of the House of Saud.

by Brian Bamford

I first became aware of the importance of politics of Saudi Arabia in the late 1980s, at the time of the idict by the Iranian Ayatollah Ruhollah Khomeini  against Salman Rushdie over his book Satanic Verses.  A friend of mine, Zafar Khan, who was from Kashmir and then living in Luton told me that the campaign against Mr. Rushdie had allowed Shiite Iran to gain the initiative in the Islamic world over the sunni House of Saud.

What I scarcely realised until more recently was that the politics of oil as deployed by the Kingdom of Saudi Arabia had dominated the world economy throughout the last half of the 20th century.  It began with the House of Saud using an oil embargo to do what the journalist Andrew Scott Cooper describes as a 'willingness to weaponize the oil markets'.  In October 1973, a coalition of Arab states led by Saudi Arabian stopped oil shipments in retaliation for America's support for Israel during  the Yom Kippur War.  After that the price of oil quadrupled leading to a big rise in the cost of living, mass unemployment and rising social disruption.

The brutal effect of the flooding of the oil markets by the Saudis that occurred in 1977 was one of the consequences of the problems that faced the Shah of Iran.  It was not the only cause of the Iranian revolution but it was one important issue:  The Shah regime was destabilised at a time when Ayatollah Ruhollah Khomeini started his campaign to replace a pro-Western monarchy with a theocratic state.  The journalist Andrew Scott Cooper suggests that the oil markets 'fuelled the rise of political Islam'.

Today, most of us in the west don't remember this because we are not now the Saudis' main target.  Now the oil crises are more to do with regional politics, as well as being an attempt to hurt the American fracking industry by undermining prices to make it uneconomic to frack.

More recently the Saudis have shown that they see the oil markets as a front line in the Sunni Muslim-majority kingdom's battle against its Shiite-dominated rival Iran.   Mr. Scott Cooper writes that the favourite tactic of thre Saudis is 'flooding' or pumping surplus crude into a soft market, which amounts to war by economic means; 'the equivalent of dropping the bomb on a rival.'

In 2006, Nawaf Obaid, a Saudi security adviser, said that 'Riyadh was prepared to force prices down to “strangle” Iran's economy.'  Then in 2008, the Saudis acted on this with the aim of undermining Tehran's ability to support Shiite militia groups in Iraq, Lebanon and other places.

In this way the price of oil helped to end the Cold War.  At that time, the Soviet Union, like Russia today, as a Communist superpower was a global energy producer heavily reliant on incomes from oil and gas.  In 1985-86, the Saudis decision to flood the market led to a collapse in prices that sent the Soviet regime into decline.  'The timeline of the collapse of the Soviet Union can be traced to Sept. 13, 1985,' wrote thre Russian economist Yegor Gaidar, 'on this date Sheikh Ahmed Zaki Yamani, the minister of oil of Saudi Arabia, declared that the monarchy had decided to alter its oil policy radically.'

Currently in Russia, fully half of government revenue comes from oil and gas.  Inflation in Russia has exceeded double digits last year; its special fund which bails out Russian companies in difficulties, is low; and factory closures are encouraging labour unrest.

Venezuela, whose economy has been damaged by lost revenues from oil, that amounts to about 95% of its export earnings.   Inflation in Venezuela is predicted by the International Monetary Fund to reach 720% this year, and it is expected to become 'financial zombie state'.  The Left is blaming the USA for President Maduro's plight but his Venezuelan  regime is in reality at the mercy of the oil markets. 

It's all a cautionary tale of what can happen to countries that depend on heavily on a single unstable commodity price.  Russia for example is in fiscal crisis at a time when it is making military interventions in the Ukraine and Syria.