One Eye on the Polls
Published on Saturday, October 14, 2006, by
One Eye on the Polls
by Dilip Hiro

The fall in the oil price earlier this week to below $58 a barrel from the peak of $78 in mid-July focused the minds of the members of Opec, accounting for two-fifths of the global output. They decided to act to counter the downward trend.

Following a week of informal negotiations, Opec president Edmund Daukoru, announced on Wednesday that Opec would reduce its output by 1 million barrels per day (bpd). What remained unclear, however, was which member would cut production by how much.

Venezuela and Iran proposed an emergency meeting at Opec's Vienna headquarters to finalise individual cuts. Algeria and Kuwait endorsed the move.

But, to the annoyance of most Opec members, Saudi Arabia has not shown its hand on the subject. With its staggering output of over 11 million bpd, Saudi Arabia remains the swing producer, able to effect price changes by decreasing or increasing its output.

What lies behind the Saudi taciturnity? The upcoming United States Congressional elections on November 7, when the governing Republicans face a strong challenge by the freshly energised Democrats.

Traditionally, the ruling House of Saud has been partial towards the US Republican party. This relationship was cemented by the personal ties that US president George Bush Sr forged with Prince Bandar, the Saudi ambassador in Washington, a son of Prince Sultan, a long time defence minister in Riyadh. Their relationship was so close that the Saudi ambassador was nicknamed "Bandar Bush".

Once George Bush Jr became president in January 2001, Prince Bandar once again found himself in a congenial company at the White House.

The 9/11 terrorist attacks on New York and Washington jolted the cosy relationship between America and Saudi Arabia: 15 of the 19 hijackers were Saudi citizens.

Crown Prince Abdullah, the de facto ruler of the desert kingdom, moved fast to counter the oil price rise expected in the aftermath of the terrorist assaults. He ordered oil minister Ali Naimi to renege on the agreement with OPEC to slash output and raise it.

Then, by rushing 500,000 oil barrels in Saudi tankers to the US, Abdullah succeeded not just in stabilising the petroleum price, but in actually lowering it from $28 to $20 a barrel in a few weeks. This went down very well with the Bush administration. .

During the run-up to the Anglo-American invasion of Iraq, Bush kept Bandar better informed on war plans than he did his secretary of state Colin Powell.

Concerned about the oil market's ability to absorb temporary deficits during a war in the Middle East, Bush specifically inquired about the spare production capacities of Saudi Arabia and the United Arab Emirates.

Based on the assurances of Bandar - according to Bob Woodward's book Plan of Attack, based on interviews with top 75 officials, including Bush and vice-president Dick Cheney - there was an expectation at the White House that the Saudi oil policy would be "the saving grace".

Actually, Bandar had his sights fixed beyond the war. He hoped the state-owned Saudi petroleum company would fine-tune oil prices over the next 10 months to prime the US economy for 2004 to generate the right economic conditions before a presidential election.

Bandar was conscious of how his friend and fellow hunter, Bush Sr, had become a victim of the economic downturn around the 1992 presidential poll.

Sure enough, during the run-up to the November 2004 US presidential election, the petroleum price, fluctuating around $28 a barrel, remained low. Bush was re-elected.

Little wonder that King Abdullah does not want to be seen cutting oil output during the last lap of the US Congressional poll.