Say Anything Blog

Thomas Lifson

Very interesting.

Numbers of leftists predicted with certainty that following the November elections oil prices would rebound. Their conspiracy theory had it that Bushalliburton was conspiring with its flunkies to dupe the ignorant masses into voting Republican. Once the elections were over, the sheep would once again be sheared by the oil patch gang.

Exactly the contrary has happened. Oil prices are going down. Warm weather in the eastern United States helped, as did a slowing of our economy. There hasn’t yet been and won’t be a chorus of apologies, or even demands from the right for a reckoning. Such foolishness speaks for itself.

Only one actor has the ability to substantially influence oil prices at the margin: Saudi Arabia. The reason is simple. Only Saudi Arabia has substantial unused production capacity. Because it can raise or lower its own production by roughly 3 million barrels a day, Saudi has an oil weapon to use. The major use for the weapon has been to enforce some discipline on OPEC. Saudi does not want sustained high prices (above $50-60 a barrel, roughly) because at that level it becomes economical to develop tar sands, oil shale, and other substitutes. It wants the maximum price that prevents development of new resources outside of its control.

Commentators are beginning to notice that Saudi is pushing prices down, and the reason seems to be more than economic. Iran needs every penny it can get from oil. High prices have funded the mullahs’ nuclear development plan, and helped keep a lid on civil discontent.

[...]

Put this another way; the Iranians contribute around 2.5 million bbls/day, that’s less than the Saudi spare capacity. The Saudis have basically pledged to make an Iranian shutdown irrelevant in the short to medium term, taking away one of the Iranian trump cards in their standoff with the West.

Read the whole thing.

I had hoped that our President would show the foresight and leadership to use our domestic oil industry as an economic weapon against Iran, but the Saudis are apparently going to carry our water on this one.  Once again, we have the Dems/lefties to thank for our vulnerability in this area.