Saudi Arabia promises oil prices drop

Saudi Press the other day reported that the Saudi Arabian government was ready to make every effort to restore fare oil prices for all market participants. In this context fair prices mean lower prices compared to the current level. Riyadh argues that growing prices of energy sources may impede the world economy and consequently affect the demand negatively. In early 2011 Saudi Arabian oil minister Ali al-Naimi pointed out that the government hoped to stabilize oil prices at about $100 per barrel.

In reality the main Arabian monarchy is trying to convince the USA of its ability to compensate risks of oil supplies shortages from other Middle East nations, rather than being afraid of too fast advance in oil prices (they are still too far from the level where renewable sources of energy become profitable). Simultaneously, Barack Obama is signaled that Riyadh is ready to facilitate decline in gasoline prices in the USA, which would be a positive sign for Obama seeking reelection for the second term. In exchange Saudi Arabia clearly wants the USA to increase pressure on Syria and Iran up to staging a military operation. But combat activities will result in sharp jump in oil prices that will stay high for several months at least.

On the whole, the military and political situation in the Middle East is becoming so tense that it is difficult to believe that Saudi Arabia has capacities to provide the world economy with oil at moderate prices in the medium-term perspective. It is possible to raise production, although it is not as simple as it may seem considering the problem of the Shia minority uprisings in Saudi Arabia’s eastern province, but what about transportation security in the region with several potential interstate and civil wars?

By Stanislav Mitrakhovich, NESF leading expert