The price of oil: Saudi Arabia, the “Shi’a Crescent and Daesh (IS)

The price of oil: Saudi Arabia, the “Shi’a Crescent and Daesh (IS)

As Security Analyst Professor Paul Rogers points out, the the Middle Eastern insurgency, or as he terms it, 'Revolts from the Margins' is morphing is ways that may have an exacerbating and self-perpetrating influence throughout the region, further destabilizing oil supplies from Saudi Arabia.  Saudi Arabia has major concerns over the increasing influence of the Islamic Republic of Iran in the Middle East, seeing a “Shi’a Crescent” in process of development from the Mediterranean to the Indian Ocean. This stretches from Hezbollah with its substantial influence in Lebanon, to the Alawi-dominated regime in Syria, through to the Shi’a-majority government in Baghdad and its suppression of the Sunni minority, and on to Iran itself. There is a further fear of Shi’a influence in the Saudi Kingdom itself where the Shi’a minority – about 15% of the population of 21 million (excluding nearly 10 million expatriates) – is located mainly in the oil-rich Eastern Province. That minority has suffered considerable suppression and control, especially since the beginning of the Arab Awakening five years ago and remains bitter in its exclusion. Furthermore, Saudi security forces have done much to support the Sunni royal family in Bahrain where the Shi’a majority (some 70% of the island’s citizens) has been suppressed.   Saudi fears of Iran stem partly from the Sunni/Shi’a divide but more significantly from its view of Iran, with a population of 80 million compared with 21 million Saudis, as a state that sees itself as the regional leader. By contrast, successive Saudi kings have regarded their role as the Keeper of the Two Holy Places as giving them the true leadership of the Islamic world. More    

A Take-No-Prisoners World of Oil

It’s evident that we’re still on a planet where oil rules. The question increasingly is: What exactly does it rule over? After all, every barrel of oil that’s burned contributes to a fast-approaching future in which the weather grows hotter and more extreme, droughts and wildfires spread, sea levels rise precipitously, ice continues to melt away in the globe's coldest reaches, and... well, you know that story well enough by now. In the meantime, Planet Earth has a glut of oil on hand and that, it turns out, doesn’t mean -- not for the major oil companies nor even for the major oil states -- that the good times are getting ready to roll.

Of all the powers struggling with that oil glut and the plunging energy prices that have gone with it, none may be more worth watching than Saudi Arabia. While exporting its own extremists and its extreme brand of Islam from Afghanistan to Syria, and lending a decades-long hand to the destabilization of the Greater Middle East, that kingdom has itself been a paragon of stability. Nothing, however, lasts forever, and so keeping an eye on the Saudis is a must. That’s especially so since the latest version of the royal family has also made what might be called the American mistake (with the backing of the Obama administration, no less) and for the first time plunged the Saudi military directly into a typically unwinnable if brutal war in neighboring Yemen.

Combine the destabilizing and blowback effects of wars that won’t end, including the Syrian one, and of oil prices that refuse to rise significantly and, despite the kingdom’s copious money reserves, you have a formula for potential domestic unrest. Already the royals are cutting their domestic subsidies to their own population, pulling billions of dollars in aid out of Lebanon, and exploring a possible $10 billion bank loan.

As TomDispatch’s invaluable energy expert Michael Klare suggests today, when oil prices began plummeting in 2015, the Saudis launched an “oil war of attrition,” imagining that others would be devastated by it (as OPEC partners Nigeria and Venezuela already have been) but that the royals themselves would emerge triumphant.

Should the unimaginable happen, however, and should the kingdom itself begin to come unglued in a Greater Middle East that is increasingly the definition of chaos -- watch out. Tom

Energy Wars of Attrition
The Irony of Oil Abundance
By Michael T. Klare

Three and a half years ago, the International Energy Agency (IEA) triggered headlines around the world by predicting that the United States would overtake Saudi Arabia to become the world’s leading oil producer by 2020 and, together with Canada, would become a net exporter of oil around 2030. Overnight, a new strain of American energy triumphalism appeared and experts began speaking of “Saudi America,” a reinvigorated U.S.A. animated by copious streams of oil and natural gas, much of it obtained through the then-pioneering technique of hydro-fracking. “This is a real energy revolution,” the Wall Street Journal crowed in an editorial heralding the IEA pronouncement.

The most immediate effect of this “revolution,” its boosters proclaimed, would be to banish any likelihood of a “peak” in world oil production and subsequent petroleum scarcity. The peak oil theorists, who flourished in the early years of the twenty-first century, warned that global output was likely to reach its maximum attainable level in the near future, possibly as early as 2012, and then commence an irreversible decline as the major reserves of energy were tapped dry. The proponents of this outlook did not, however, foresee the coming of hydro-fracking and the exploitation of previously inaccessible reserves of oil and natural gas in underground shale formations. More

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The collapse of Saudi Arabia is inevitable

On Tuesday 22 September, Middle East Eye broke the story of a senior member of the Saudi royal family calling for a “change” in leadership to fend off the kingdom’s collapse.

Saudi King Salman bin Abdulazi

In a letter circulated among Saudi princes, its author, a grandson of the late King Abdulaziz Ibn Saud, blamed incumbent King Salman for creating unprecedented problems that endangered the monarchy’s continued survival.

“We will not be able to stop the draining of money, the political adolescence, and the military risks unless we change the methods of decision making, even if that implied changing the king himself,” warned the letter.

Whether or not an internal royal coup is round the corner – and informed observers think such a prospect “fanciful” – the letter’s analysis of Saudi Arabia’s dire predicament is startlingly accurate.

Like many countries in the region before it, Saudi Arabia is on the brink of a perfect storm of interconnected challenges that, if history is anything to judge by, will be the monarchy’s undoing well within the next decade.

Black gold hemorrhage

The biggest elephant in the room is oil. Saudi Arabia’s primary source of revenues, of course, is oil exports. For the last few years, the kingdom has pumped at record levels to sustain production, keeping oil prices low, undermining competing oil producers around the world who cannot afford to stay in business at such tiny profit margins, and paving the way for Saudi petro-dominance.

But Saudi Arabia’s spare capacity to pump like crazy can only last so long. A new peer-reviewed study in the Journal of Petroleum Science and Engineering anticipates that Saudi Arabia will experience a peak in its oil production, followed by inexorable decline, in 2028 – that’s just 13 years away.

This could well underestimate the extent of the problem. According to the Export Land Model (ELM) created by Texas petroleum geologist Jeffrey J Brown and Dr Sam Foucher, the key issue is not oil production alone, but the capacity to translate production into exports against rising rates of domestic consumption.

Brown and Foucher showed that the inflection point to watch out for is when an oil producer can no longer increase the quantity of oil sales abroad because of the need to meet rising domestic energy demand.

In 2008, they found that Saudi net oil exports had already begun declining as of 2006. They forecast that this trend would continue.

They were right. From 2005 to 2015, Saudi net exports have experienced an annual decline rate of 1.4 percent, within the range predicted by Brown and Foucher. A report by Citigroup recently predicted that net exports would plummet to zero in the next 15 years.

From riches to rags

This means that Saudi state revenues, 80 percent of which come from oil sales, are heading downwards, terminally.

Saudi Arabia is the region’s biggest energy consumer, domestic demand having increased by 7.5 percent over the last five years – driven largely by population growth.

The total Saudi population is estimated to grow from 29 million people today to 37 million by 2030. As demographic expansion absorbs Saudi Arabia’s energy production, the next decade is therefore likely to see the country’s oil exporting capacity ever more constrained.

Renewable energy is one avenue which Saudi Arabia has tried to invest in to wean domestic demand off oil dependence, hoping to free up capacity for oil sales abroad, thus maintaining revenues.

But earlier this year, the strain on the kingdom’s finances began to show when it announced an eight-year delay to its $109 billion solar programme, which was supposed to produce a third of the nation’s electricity by 2032.

State revenues also have been hit through blowback from the kingdom’s own short-sighted strategy to undermine competing oil producers. As I previously reported, Saudi Arabia has maintained high production levels precisely to keep global oil prices low, making new ventures unprofitable for rivals such as the US shale gas industry and other OPEC producers.

The Saudi treasury has not escaped the fall-out from the resulting oil profit squeeze – but the idea was that the kingdom’s significant financial reserves would allow it to weather the storm until its rivals are forced out of the market, unable to cope with the chronic lack of profitability.

That hasn’t quite happened yet. In the meantime, Saudi Arabia’s considerable reserves are being depleted at unprecedented levels, dropping from their August 2014 peak of $737 billion to $672bn in May – falling by about $12bn a month.

At this rate, by late 2018, the kingdom’s reserves could deplete as low as $200bn, an eventuality that would likely be anticipated by markets much earlier, triggering capital flight.

To make up for this prospect, King Salman’s approach has been to accelerate borrowing. What happens when over the next few years reserves deplete, debt increases, while oil revenues remain strained?

As with autocratic regimes like Egypt, Syria and Yemen – all of which are facing various degrees of domestic unrest – one of the first expenditures to slash in hard times will be lavish domestic subsidies. In the former countries, successive subsidy reductions responding to the impacts of rocketing food and oil prices fed directly into the grievances that generated the “Arab Spring” uprisings.

Saudi Arabia’s oil wealth, and its unique ability to maintain generous subsidies for oil, housing, food and other consumer items, plays a major role in fending off that risk of civil unrest. Energy subsidies alone make up about a fifth of Saudi’s gross domestic product.

Pressure points

As revenues are increasingly strained, the kingdom’s capacity to keep a lid on rising domestic dissent will falter, as has already happened in countries across the region.

About a quarter of the Saudi population lives in poverty. Unemployment is at about 12 percent, and affects mostly young people – 30 percent of whom are unemployed.

Climate change is pitched to heighten the country’s economic problems, especially in relation to food and water.

Like many countries in the region, Saudi Arabia is already experiencing the effects of climate change in the form of stronger warming temperatures in the interior, and vast areas of rainfall deficits in the north. By 2040, average temperatures are expected to be higher than the global average, and could increase by as much as 4 degrees Celsius, while rain reductions could worsen.

This would be accompanied by more extreme weather events, like the 2010 Jeddah flooding caused by a year’s worth of rain occurring within the course of just four hours. The combination could dramatically impact agricultural productivity, which is already facing challenges from overgrazing and unsustainable industrial agricultural practices leading to accelerated desertification.

In any case, 80 percent of Saudi Arabia’s food requirements are purchased through heavily subsidised imports, meaning that without the protection of those subsidies, the country would be heavily impacted by fluctuations in global food prices.

“Saudi Arabia is particularly vulnerable to climate change as most of its ecosystems are sensitive, its renewable water resources are limited and its economy remains highly dependent on fossil fuel exports, while significant demographic pressures continue to affect the government’s ability to provide for the needs of its population,” concluded a UN Food & Agricultural Organisation (FAO) report in 2010.

The kingdom is one of the most water scarce in the world, at 98 cubic metres per inhabitant per year. Most water withdrawal is from groundwater, 57 percent of which is non-renewable, and 88 percent of which goes to agriculture. In addition, desalination plants meet about 70 percent of the kingdom’s domestic water supplies.

But desalination is very energy intensive, accounting for more than half of domestic oil consumption. As oil exports run down, along with state revenues, while domestic consumption increases, the kingdom’s ability to use desalination to meet its water needs will decrease.

End of the road

In Iraq, Syria, Yemen and Egypt, civil unrest and all-out war can be traced back to the devastating impact of declining state power in the context of climate-induced droughts, agricultural decline, and rapid oil depletion.

Yet the Saudi government has decided that rather than learning lessons from the hubris of its neighbours, it won’t wait for war to come home – but will readily export war in the region in a madcap bid to extend its geopolitical hegemony and prolong its petro-dominance.

Unfortunately, these actions are symptomatic of the fundamental delusion that has prevented all these regimes from responding rationally to the Crisis of Civilization that is unravelling the ground from beneath their feet. That delusion consists of an unwavering, fundamentalist faith: that more business-as-usual will solve the problems created by business-as-usual.

Like many of its neighbours, such deep-rooted structural realities mean that Saudi Arabia is indeed on the brink of protracted state failure, a process likely to take-off in the next few years, becoming truly obvious well within a decade.

Sadly, those few members of the royal family who think they can save their kingdom from its inevitable demise by a bit of experimental regime-rotation are no less deluded than those they seek to remove.

- Nafeez Ahmed PhD

 

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Saudi Arabia risks destroying Opec and feeding the Isil monster

The rumblings of revolt against Saudi Arabia and the Opec Gulf states are growing louder as half a trillion dollars goes up in smoke, and each month that goes by fails to bring about the long-awaited killer blow against the US shale industry.

“Saudi Arabia is acting directly against the interests of half the cartel and is running Opec over a cliff. Helima Croft, RBC Capital Markets

Algeria’s former energy minister, Nordine Aït-Laoussine, says the time has come to consider suspending his country’s Opec membership if the cartel is unwilling to defend oil prices and merely serves as the tool of a Saudi regime pursuing its own self-interest. “Why remain in an organisation that no longer serves any purpose?” he asked.

Saudi Arabia can, of course, do whatever it wants at the Opec summit in Vienna on December 4. As the cartel hegemon, it can continue to flood the global market with crude oil and hold prices below $50.

It can ignore desperate pleas from Venezuela, Ecuador and Algeria, among others, for concerted cuts in output in order to soak the world glut of 2m barrels a day, and lift prices to around $75. But to do so is to violate the Opec charter safeguarding the welfare of all member states.

“Saudi Arabia is acting directly against the interests of half the cartel and is running Opec over a cliff. There could be a total blow-out in Vienna,” said Helima Croft, a former oil analyst at the US Central Intelligence Agency and now at RBC Capital Markets

The Saudis need Opec. It is the instrument through which they leverage their global power and influence, much as Germany attains world rank through the amplification effect of the EU.

The 29-year-old deputy crown prince now running Saudi Arabia, Mohammad bin Salman, has to tread with care. He may have inherited the steel will and vaulting ambitions of his grandfather, the terrifying Ibn Saud, but he has ruffled many feathers and cannot lightly detonate a crisis within Opec just months after entangling his country in a calamitous war in Yemen. “It would fuel discontent in the Kingdom and play to the sense that they don’t know what they are doing,” she said.

The International Energy Agency (IEA) estimates that the oil price crash has cut Opec revenues from $1 trillion a year to $550bn, setting off a fiscal crisis that has already been going on long enough to mutate into a bigger geostrategic crisis.

Mohammed Bin Hamad Al Rumhy, Oman’s (non-Opec) oil minister, said the Saudi bloc has blundered into a trap of their own making - a view shared by many within Saudi Arabia itself.

“If you have 1m barrels a day extra in the market, you just destroy the market. We are feeling the pain and we’re taking it like a God-driven crisis. Sorry, I don’t buy this, I think we’ve created it ourselves,” he said.

The Saudis tell us with a straight face that they are letting the market set prices, a claim that brings a wry smile to energy veterans. One might legitimately suspect that they will revert to cartel practices when they have smashed their rivals, if they succeed in doing so.

One might also suspect that part of their game is to check the advance of solar and wind power in a last-ditch effort to stop the renewable juggernaut and win another reprieve for the status quo. If so, they are too late. That error was made five or six years ago when they allowed oil prices to stay above $100 for too long. But Opec can throw sand in the wheels. More

 

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The long-term petroleum price outlook - When will it escalate?

For the last few years, the Saudi kingdom’s insistence on pumping oil at high capacity has dramatically depressed oil prices. The result has undermined Saudi’s major oil rivals in OPEC – like Iran and Venezuela.

It has also hit Russia, hard.

Rating agency Standard & Poor forecasts that Russia’s budget deficit is set to swell to 4.4 per cent of GDP this year. Russia’s own finance ministry concedes that if expenditures continue at this rate, within sixteen months – by around the end of next year – its oil reserve funds will be exhausted.

Meanwhile, over the last year real incomes have dropped by 9.8 per cent, and food prices have spiked by 17 per cent, heightening the risk of civil unrest.

System failureh

Rumbling along beneath the surface of such financial woes are deeper systemic issues.

A report from the Swedish Defence Research Agency notes that “prolonged dry periods in southern Russia are having the effect of reducing the level of food production”.

Most of Russia’s wheat imports come from Kazakhstan, “where climate change is expected to exacerbate droughts. These impacts would make farming harder and food more expensive,” observe Dr. Marina Sharmina and Dr. Christopher Jones of the Tyndall Centre for Climate Change Research.

Russia’s looming energy crisis is the other elephant in the room. In 2013, HSBC forecasted that Russia would hit peak oil between 2018 and 2019, experiencing a brief plateau before declining by 30 per cent from 2020 to 2025.

That year, Fitch Ratings came to pretty much the same conclusion. And last year, Leonid Fedun, vice-president of Russia’s second largest oil producer, Lukoil, predicted that the production could peak earlier due to falling oil prices and US-EU sanctions.

Faced with overlapping economic, food and energy crises, Russia is well and truly on the brink. More

Furthermore, According to a recent report from the IMF, Saudi Arabia’s public debt is estimated to rise from below 2 percent of its GDP in 2014 up to 33 percent by the end of 2020. The report also shows that in the past three years, Saudi Arabia’s budget surplus was turned into a deficit reaching 21.6 percent of GDP in 2015. More

 

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It's Time for the United States to Start Worrying About a Saudi Collapse

As if there weren’t already enough problems to worry about in the Middle East, Saudi Arabia might be headed for trouble.

From plummeting oil prices to foreign-policy missteps to growing tensions with Iran, a confluence of recent events is mounting to pose some serious challenges for the Saudi regime. If not properly managed, these events could eventually coalesce into a perfect storm that significantly increases the risk of instability within the kingdom, with untold consequences for global oil markets and security in the Middle East.

Here are some of the percolating problems that could throw the country off kilter.

Fissures Within the Royal Family. Last week, the Guardian published two letters that an anonymous Saudi prince recently circulated among senior members of the royal family, calling on them to stage a palace coup against King Salman. The letters allege that Salman, who ascended to the throne in January, and his powerful 30-something son Deputy Crown Prince Mohammed bin Salman have pursued dangerous policies that are leading the country to political, economic, and military ruin. In an interview with the Guardian, the prince insisted that his demand for a change in leadership not only had growing support within the royal family but across broader Saudi society as well. “The public [is] also pushing for this very hard,” he claimed. “They say you have to do this or the country will go to disaster.” The article, which includes the letters, written in Arabic, has been shared more than 15,000 times.

The Yemen War. The longer it drags on, the greater the risk that the Saudi intervention against Houthi rebels could become a serious source of internal dissension. In its story on the prince’s letters, the Guardian reported that “many Saudis are sickened by the sight of the Arab world’s richest country pummelling its poorest.” Particular blame is attached to Prince Mohammed bin Salman, who also serves as the kingdom’s defense minister and by all accounts has been the driving force behind the war effort. Tagged with the unofficial nickname “Reckless,” Prince Mohammed bin Salman has been accused of rushing into Yemen without a clear strategy or exit plan, resulting in mounting costs in blood and treasure, an ever-expanding humanitarian crisis, and growing international criticism.

Economic Problems. Thanks largely to Saudi policy, oil prices plummeted by more than 50 percent in the past year. Facing a market glut due to the U.S. oil boom, Saudi strategy has been to maintain high production, fight for market share, allow prices to collapse, and wait for higher cost producers, particularly in America, to be driven out of business. With cheaper oil spurring increased demand and squeezing out excess supply, the theory was that higher prices would return before the kingdom ever felt any real economic pinch.

But it hasn’t quite worked out that way — at least not as quickly as the Saudis anticipated. Indeed, Saudi Arabia’s 2015 budget was based on the assumption that oil would be selling at about $90 per barrel. Today, it’s closer to half that. At the same time, the Saudis have incurred a rash of expenses that weren’t planned for, including those associated with King Salman’s ascendance to the throne (securing loyalty for a new king can be expensive business) and the war in Yemen.

The result is a budget deficit approaching 20 percent, well over $100 billion, requiring the Saudis to deplete their huge foreign exchange reserves at a record rate (about $12 billion per month) while also accelerating bond sales. The Saudis have reportedly liquidated more than $70 billion of their holdings with global asset managers in just the past 6 months.

While there’s no danger that the kingdom will run out of money anytime soon, the longer this trend of large budget deficits, lower oil prices, and declining foreign exchange reserves continues, the more nervous international markets will become — with potential implications for key indicators like credit rating and capital flight. Adding to long-term concerns is the fact that Saudi net oil exports have been in slow decline for years as internal energy consumption rises dramatically. Indeed, analysts now suggest that rapidly expanding domestic demand could render the kingdom a net importer of oil by the 2030s. It goes without saying that such a development poses a mortal threat to the kingdom, where oil sales still account for 80 to 90 percent of state revenues. More

 

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Is The Latest Attack In Saudi Arabia The Beginning Of A Resistance Movement?

The latest attack in Saudi Arabia could be the beginning of a resistant movement against the current regime, as well as with Yemeni hostilities carried out by the House of Saud, Catherine Shakdam, Beirut Center for Middle East Studies told RT.

At least 15 people were reportedly killed in an attack on a mosque in Asir province in Saudi Arabia yesterday. A suicide bomber struck a mosque used by the army. The Interior Ministry claims the attack was carried out by Islamic State (IS, formerly ISIS).

RT: Do you think this was Islamic State again?

Catherine Shakdam: I don’t think so. I think it has more to do with the beginning of resistance movements against the Saudi regime, inside of Saudi Arabia rather than just some form of ISIS backlash. Because of where the attack actually took place - in Asir, which is a southern province of Saudi Arabia; we had province right next door to it, in Jizan, where tribes have already declared that they were against the Saudi regime and that they would organize resistance movements against them and actually fight them and reject the legitimacy.

I think that what we’re seeing today is really just an extension of this. And it has a lot to do with the Yemeni war. I’m not saying that the Yemeni are responsible - not at all. What I’m saying is that because of this war a lot of people now within the kingdom are going to react against Riyadh and trying to organize a resistance movement against them, against this dictatorship. And they are reacting. I think even though it was an attack directed against a mosque, it has more to do with who they were targeting - and it’s really just security forces rather than just civilians. So it is not to be confused with the type of the time that we have seen previously, for example, in Qatif, where Shia mostly was directly targeted. It is kind of a different type of attack here.

RT: Compared with other countries in the region, Saudi Arabia was seen as relatively safe from terror attacks until recently. Do you see such attacks becoming more frequent in the future?

CS: It is a possibility. And only because the Saudi have actually funded… terrorism, for decades. You can trace it back to the 1960s when they first allowed elements from the Muslim Brotherhood to come into exile in Saudi Arabia - they were welcomed them with the open arms. And this is today coming back to bite them. All those funds that have been allocated to radical movements across the Middle East and even beyond this. They have tried to open up, I would say, radical fronts in America, in Europe and all over the world. And today those elements that they have leaned on to maintain a strong hand on the Saudi people is actually coming back to haunt them. And they are paying the price today.

http://www.rt.com/op-edge/311841-terrorism-saudi-arabia-attack/

 

 

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Is the Iran deal about staving off the coming oil shock - By Nafeez Ahmed

The Iran nuclear deal signals a major shift in the geopolitics of the Middle East. Integral to the equation is oil, economics, terror – and US hegemony.

The Bush administration had initiated a long-term covert strategy to undermine Iranian influence in the Middle East and Central Asia, combined with overt pressure through diplomatic initiatives and economic sanctions.

Under Obama, this strategy accelerated, largely in concert with other Gulf powers like Saudi Arabia, Qatar and the UAE, who have long sought to roll-back Iranian influence.

Yet even as the strategy accelerated, unlike its predecessors which openly declared their warmongering hostility to Iran, the Obama administration had used the pressure to forge an unprecedented deal with the country.

Averting regional war

The reasons for the shift are, of course, pragmatic. For years, US intelligence agencies have told the White House that there is simply no evidence Iran is trying to build a nuclear bomb.

And the International Atomic Energy Agency (IAEA) has repeatedly certified that uranium is not being enriched to levels necessary for weaponisation, nor is it being diverted to a secret weapons programme.

Meanwhile, senior US military officials have long warned that the sort of US-Iran military confrontation which frothing neoconservatives have been pining for would likely fail and destabilise the entire region.

What about an Israel-Iran confrontation? A classified Pentagon war simulation held in 2012 found that an Israeli attack on Iran would also lead to a wider regional war.

Unlike the neocons, for the military pragmatists in successive US administrations, war with Iran could never be a preferred option.

The added bonus is that Iran might notch down its involvement in Iraq and Syria.

Earlier this year, the US assured its allies at the Camp David summit that under the nuclear deal, Iran’s growing geopolitical influence in the region would be curtailed. Simultaneously, the US gave Saudi Arabia, Qatar, the UAE and others the green light to accelerate support to the Islamist militants of their choice in Syria.

George Friedman, founder and CEO of private US intelligence firm Stratfor – which operates closely with the Pentagon and State Department – forecasted the US-Iran détente four years ago.

His prescient assessment of its strategic rationale is worth noting. Friedman explained that by reaching “a temporary understanding with Iran,” the US would give itself room to withdraw while playing off Iran against the Sunni regimes, limiting Iran’s “direct controls” in the region, “while putting the Saudis, among others, at an enormous disadvantage”.

“This strategy would confront the reality of Iranian power and try to shape it,” wrote Friedman.

Ultimately, though, the US is betting on the rise of Turkey – hence the latter’s pivotal role in the new anti-IS rebel training strategy, despite Turkey’s military and financial sponsorship of IS. More

 

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Peak Oil Notes December 11 2014

Peak oil notes - Dec 11 - by Tom Whipple,

The drop in oil prices continued this week as US crude stocks increased, OPEC lowered its demand forecast for next year, several OPEC countries reduced their selling prices to Asian customers, and the Saudi Oil Minster reaffirmed his intention to maintain production.

By the close on Wednesday London's Brent was down to $64.24 a barrel and NY futures were at $60.94. London’s close, below $65 a barrel, was the lowest in five years.

The drop in oil prices spread to the equities markets on Wednesday which also saw major losses. Shares in shale-drilling companies have dropped sharply as the drillers revenues have gone down. The financial press is filled with stories about “survival of the fittest” as many anticipate that several of the weaker shale oil drillers will go under unless oil prices revive soon.

The OPEC secretariat announced that the cartel’s production in November was 30.05 million b/d down by 390,000 b/d from October, but this was after the October figure was revised up by 190,000 b/d leaving a net drop of only 200,000 b/d. The secretariat has never had much proprietary information on how much oil its members are producing and is forced to rely on third parties and the press for production numbers. The cartel also reduced its forecast for its demand in 2015 to 28.9 million b/d as compared to demand of 29.4 million b/d this year.

This week's stocks report showed that US refiners are taking advantage of the low crude prices to bump up US oil refining to 16.5 million b/d, the highest level in records going back to 1989. Even with the record refining, US crude stocks increased by an unexpected 1.5 million barrels. All the refining last week left US gasoline inventories up by 8.2 million barrels and distillate inventories up by 5.6 million barrels. US “oil” production rose to 9.1 million b/d last week, the highest since 1983.

Months of steady declines in oil prices have lead to consternation across the world. Although oil importers are celebrating lower gasoline prices and the likelihood that their economies will receive an economic boost, other countries are seeing serious problems ahead as oil revenues drop precipitously and budgets must be slashed. In the US, numerous companies have announced plans to cut back on drilling next year, but in general, prices have fallen so fast that there has not been time to see all the implications of the price drop.

Comments on the current situation and just how low oil prices will go continues unabated. Tom Kloza of the Oil Price Information Service says that $35-$50 a barrel is a possibility next year if OPEC does not reduce production. In this case, average US gasoline prices would be below $2 a barrel. Iran’s President says his country is the victim of a gigantic conspiracy that is causing grave damage to his country’s economy. More

Originally published by ASPO-USA | DEC 11, 2014

 

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Geo-politics of oil in Saudi Arabia: Potential for Conflict

Saudi Arabia’s New Strategic Game in South Asia

Motivated by old and new security anxieties, and above all, by its sectarian competition with Iran, Saudi Arabia is playing a new game in South Asia. In a dramatic shift from prior decades, warming ties with India have already served Riyadh well by steering New Delhi away from a closer partnership with Tehran. Separately, reenergized links with Pakistan offer Riyadh even more potent ammunition to counter Iran’s nuclear and regional ambitions.

Although Western analysts tend to view Saudi policies through a Middle Eastern lens, Riyadh’s South Asia play is a high-stakes gambit with direct consequences for Iranian nuclear developments, the war in Syria, Pakistan’s stability and Indo-Pakistani peace. Fortunately, if Washington is clever and a little lucky, many of Riyadh’s moves with Islamabad and New Delhi can be turned to the U.S. advantage.

Saudi Anxieties, Old and New

Throughout its modern history, the insular and fabulously wealthy Saudi monarchy has grappled with domestic and regional security anxieties despite extraordinary military expenditures. At home, the state’s official sponsorship of the austere Salafi school of Sunni Islam has created particular problems with the country’s Shia minority on the one hand, and with radical and violent Islamist groups such as Al Qaeda, on the other. At the same time, the tradition-bound, dynastic politics of the Al Saud family poses an obstacle to the sort of reform that would encourage broad-based economic growth and political participation.

Given these domestic political challenges, the events of the 2011 “Arab Spring” raised new Saudi fears about internal unrest and regional strife. Saudi leaders have tended to interpret recent political upheavals in the context of a broader sectarian and strategic competition with Iran. That rivalry for leadership within the Muslim world has driven Saudi defense and foreign policy for decades and shows no serious sign of abating.

Iran’s nuclear ambitions exacerbate Saudi fears, and the latest spate of U.S.-led multilateral negotiations with Tehran has done little to inspire confidence in Riyadh. Like the Israelis and other critics of the process, the Saudis worry that Iran is using talks to slip free from crippling international sanctions in ways that will allow Tehran to expand its regional influence without permanently conceding its nuclear weapons or ballistic-missile ambitions. Unlike the Israelis, the Saudis do not yet have their own nuclear arsenal to deter Iran. But prominent Saudis, such as former intelligence chief Prince Turki Al Faisal, have declared that Riyadh would have no choice but to go nuclear if Iran ever actually crossed that threshold.

Recent U.S. and Saudi differences over the Arab Spring and Iranian nuclear negotiations exist against a larger backdrop: the gradual deterioration in Riyadh’s relationship with Washington. Throughout the Cold War, that relationship was justified by Washington’s commitment to defending the world’s preeminent energy producer from Soviet conquest. In the post–Cold War period, Washington remained concerned about secure access to Gulf energy supplies, but U.S. wars in Iraq ultimately contributed to the deterioration in bilateral ties with Riyadh, even though the Saudis had no love for Saddam Hussein’s Baathist regime. And, of course, the biggest shock to the U.S.-Saudi relationship came on 9/11, given the Saudi origins of fifteen of the nineteen Al Qaeda hijackers.

Looking ahead, there are additional reasons to anticipate that Saudi-U.S. ties will ebb. Above all, whereas U.S. energy imports from Saudi Arabia used to be taken for granted, the U.S.-led technological revolution in hydraulic fracturing, or “fracking,” and improvements in energy efficiencies are turning the United States into a net energy exporter. Energy sales will no longer offer as significant commercial ballast to the U.S.-Saudi bilateral relationship as they once did.

To be sure, Washington and Riyadh will continue to share important interests. On balance, however, the Saudis see the writing on the wall, and they have been smart to seek new ways to adapt to an increasingly difficult strategic environment. Riyadh has begun to diversify its commercial and strategic relationships and consider its security in an Asia-centric, rather than U.S.-centric, context. Evidence of these shifts is already apparent in the Saudi strategy for South Asia.

A New Game with New Delhi

In early 2012, Saudi authorities arrested Sayeed Zabiudeen Ansari (alias Abu Jundal), a Lashkar-e-Taiba (LeT) operative accused of playing a central role in planning and executing the 2008 terror attacks in Mumbai, India. After months of behind-the-scenes diplomatic wrangling between Islamabad, Riyadh, New Delhi, and Washington, Ansari was deported to India, where he was publicly re-arrested and interrogated extensively. Today he sits in solitary confinement in Mumbai’s central jail, and Indian sources claim that he has shed significant light on the Mumbai operation, including its links with members of the Pakistani intelligence service, or ISI.

Riyadh’s decision to send Ansari to India was remarkable. Ansari had traveled to Saudi Arabia on a Pakistani passport and his interrogation was almost certain to implicate the ISI—and by extension, provide strong evidence on the question of the Pakistani state’s support to terrorists. Pakistani officials undoubtedly would have preferred that Ansari be returned to their custody, and in the past, the intimate ties between Saudi and Pakistani intelligence services would have trumped Indian requests. In this case, however, Indian authorities prevailed. It helped, of course, that the facts were in New Delhi’s favor: Ansari was actually an Indian whose DNA matched with that of his Indian father. Pressure from U.S. intelligence officials and growing Saudi concerns about the genuine threat posed by groups like LeT may have sealed the deal.

Yet the Ansari case was also part of a wider trend in the Saudi-Indian relationship dating back to the end of the Cold War. For decades, India’s tilt toward Moscow and anemic economy had hindered the full flowering of ties between New Delhi and Riyadh. The new post–Cold War order paved the way for Riyadh to reimagine India’s potential as a growing energy consumer, a powerful regional actor, and even a strategic partner.

More important, in the early 2000s, Riyadh had good reasons for concern that India was growing closer to Iran. In 2000, India and Iran agreed to invest in a transit corridor linking an expanded Iranian port of Chabahar on the Arabian Sea to Afghanistan and Central Asia. In 2001, Indian Prime Minister Atal Bihari Vajpayee visited Tehran, and in 2003, Iranian president Mohammed Khatami was India’s chief guest for the annual Republic Day celebration. The 2003 “New Delhi Declaration” included pledges by the two sides to expand and deepen commercial links—especially energy trade—and defense cooperation in a “strategic partnership.” Early signs, such as security-oriented working groups and naval exercises, along with a 35 percent jump in bilateral trade between 2004 and 2005, suggested that this Indo-Iranian partnership had the potential to be more than mere rhetoric.

Riyadh, however, did not sit idly by and watch the Indo-Iranian relationship mature. The Saudis had important cards to play, not least their place as India’s top source for petroleum imports. These existing commercial ties were actively encouraged and bolstered by the diplomatic outreach of Saudi leaders. In 2006, King Abdullah visited New Delhi, the first trip to India by a Saudi monarch since 1955. There the two sides vowed to expand trade and to improve counterterror cooperation. In 2010, Prime Minister Manmohan Singh returned the favor with a three-day, high-profile visit to the kingdom, during which the two sides also declared themselves “strategic partners” and paved the way for a follow-on defense cooperation pact inked in February 2014.

From a Saudi perspective, India is clearly an important energy customer, but the heightened strategic value of closer ties with India is better appreciated when viewed through the lens of Riyadh’s rivalry with Tehran. Here Saudi policy analysts suggest that diplomatic outreach to New Delhi has already achieved significant successes. Point by point, the emergent Indo-Iranian partnership of the early 2000s has been matched by Riyadh’s own diplomatic overtures of the past decade.

In addition, the Saudis have continued to supply about a fifth of India’s petroleum imports, even as total Indian energy demand more than doubled from 1990 to 2009. In an era when India has faced mounting international pressure (especially from the United States) to limit the growth of its oil imports from Iran, reliable Saudi supplies provide a crucial alternative. In 2012, for instance, India cut its Iranian crude imports by 11 percent. In 2013, India cut even further, and Iran fell from number three to number seven on the list of India’s top oil suppliers. Without the confidence inspired by unstinting Saudi energy supplies and royal reassurances, India would also have been less likely to take diplomatic action against Iran by casting multiple important votes in the United Nations’ International Atomic Energy Agency (IAEA) during the period from 2005 to 2009.

To be sure, India has hardly turned into an unabashed supporter of the Saudi agenda. New Delhi remains concerned about the role of Saudi support to Salafist groups throughout the region, including in India itself, home to nearly 10 percent of the world’s Muslims. And Riyadh’s long history of intimate links with Pakistan’s security establishment will remain a source of distrust and tension for the foreseeable future. Moreover, New Delhi tries to maintain cordial, better relations with Iran. Tehran and New Delhi still see eye-to-eye on the situation in Afghanistan, and India has assiduously avoided taking sides in the Syrian civil war.

Nevertheless, the Saudis have clearly mounted an unprecedented effort to minimize India’s dependence on Iran and the gambit has worked in important, if circumscribed, ways.

Reinforced Ties with Pakistan

In April 2014, 130,000 troops took part in Saudi Arabia’s largest-ever military exercises. Dubbed “Abdullah’s Shield,” the show of strength included an impressive parade for visiting dignitaries in honor of King Abdullah’s ninth anniversary on the throne. Pakistan’s army chief, General Raheel Sharif, sat next to Prince Mutaib, the king’s son and National Guard minister, as a public demonstration of their important bilateral ties.

The parade was the latest in a series of recent events that suggest a rekindling of intimate relations between Riyadh and Islamabad, starting in mid-2013. The Saudi crown prince and foreign minister have each visited Pakistan, and General Sharif’s attendance at the military parade in April was his second high-profile trip to the kingdom since ascending to Pakistan’s top army job only six months earlier. Even more striking, however, was Islamabad’s March 2014 announcement that an unnamed friend—undoubtedly Saudi Arabia—had given Pakistan a “gift” of $1.5 billion, aimed at bolstering Pakistan’s currency. Well-placed Pakistani sources have since suggested that the total aid package could actually end up being twice or three times that amount.

Government officials in Islamabad contend that the recent Saudi embrace is nothing new. Saudi Arabia has had a long history of close ties with Pakistan: Islamabad started sending military trainers to the Kingdom in the 1960s, and during the 1970s and 1980s stationed thousands of troops—possibly as many as 20,000—there to bolster internal and external defenses. In return, the Saudis delivered to Pakistan nearly $1 billion in aid per year throughout most of the 1980s.

Also in the 1980s, the Saudis worked hand-in-hand with the United States to funnel billions of dollars to the anti-Soviet Afghan mujahedeen, all by way of Pakistan’s ISI. But the Saudi-Pakistani cooperation in Afghanistan did not end when the United States pulled away at the end of the Cold War. Indeed, the two continued to collaborate in their support to friendly factions—including the Taliban—during the Afghan civil war of the 1990s. Nor did Riyadh withdraw its support when Pakistan tested its nuclear weapons in 1998. To the contrary, the Saudis reportedly provided Islamabad with a desperately needed infusion of free energy, to the tune of 50,000 barrels of oil per day, to offset the pain of international sanctions.

For decades, the Saudis have played an influential political role in Islamabad. Riyadh’s willingness to host exiled Prime Minister Nawaz Sharif throughout most of General Pervez Musharraf’s regime was a tangible manifestation of that influence, as was Sharif’s well-financed return to Pakistan during the 2007-8 national parliamentary campaign. More than that, rumors are rife that many of Pakistan’s elite leaders—from across the political spectrum—quietly receive generous gifts from royal Saudi benefactors.

Saudi largesse and influence thus have a pronounced history in Pakistan, but the first five years of civilian rule after Musharraf’s departure in 2008 never saw the senior Saudi visits or generous aid packages of 2013 and 2014. The cooling of Pak-Saudi relations between 2008 and 2013 was primarily a consequence of Riyadh’s distrust of then-President Asif Ali Zardari. That distrust was rooted in several factors, including the Saudi belief that Zardari, the widower of former Prime Minister Benazir Bhutto and inheritor of the Pakistan People’s Party (PPP) that was founded in 1967 by her father, Zulfikar Ali Bhutto, is less of a loyal friend than Pakistan’s military leaders or the current prime minister, Nawaz Sharif (no relation to the current army chief).

This point was reinforced when Zardari’s PPP lost the May 2013 elections to Nawaz Sharif’s Pakistan Muslim League party, and Riyadh and Islamabad quickly got back to business-as-usual. From a Saudi perspective, Sharif’s loyalties—both sectarian and geopolitical—are unimpeachable. Now that they have their man in Islamabad, the Saudis expect that Pakistan will not tilt toward Tehran in any matter of significant concern.

The question is exactly what the Saudis expect to get from Pakistan for their generous financial assistance and friendly diplomacy. Initially thought to be at the top of a speculative quid pro quo list was the idea that the Saudis sought to spring former president Musharraf from house arrest (imposed while he stands trial for actions he took as Pakistan’s president) into a comfortable exile of the sort Nawaz Sharif enjoyed. Although this outcome would still be a plausible way for Musharraf’s current political drama to end, so far he continues to languish in Pakistan despite new rumors cropping up each time a senior Saudi official lands in Islamabad.

Other Pakistani analysts speculate that Riyadh’s friendly coercion was aimed at blocking plans for a gas pipeline from Iran, originally called the IPI for its ambition of running from Iran’s South Pars field through Pakistan to India. Saudi Arabia would clearly like to keep Iran from poking any holes in international sanctions, but it is less certain that Riyadh needed to pay Pakistan in order to kill the IPI. The pipeline deal was already plagued by delays, and major financial and security obstacles remain in the way of a line that would run through Baluchistan, some of the region’s most insecure and violent real estate.

Pipeline or no, Pakistan may be on track to deliver on two far more sensitive issues: Syria and nuclear weapons. Regarding Syria, despite subsequent claims to the contrary, Pakistan appeared to alter its policy stance after the February 2014 visit to Islamabad by the Saudi Crown Prince and Defense Minister, Salman bin Abdulaziz Al Saud. In a joint communiqué, Pakistan expressed support for the Saudi goals of forming a Syrian “transitional governing body” and removing all foreign (read: Iranian) military forces.

In addition, Pakistani military officers appear to be involved in the training of Syrian groups fighting the Assad regime, and the Saudis may have purchased a range of Pakistani-manufactured small arms, possibly even antiaircraft and antitank missiles, for use by anti-Assad insurgent groups. When asked, Pakistani officials have denied that their troops are training Syrian rebels and claim that the use of any weapons sold to Saudi Arabia would be contractually restricted to the Saudis themselves. But these deflections suggest obvious loopholes; retired Pakistani officers are not “serving troops,” and if the Saudis break end-use restrictions on Pakistan-made weapons, there is no reason to expect Islamabad would ever hold them accountable.

On the nuclear front, the picture is even more opaque. Pakistani officials uniformly insist that they learned their lesson from the experience of Dr. A.Q. Khan’s infamous international proliferation network that being involved in the transfer of nuclear materials and know-how is a dangerous and costly game—one they should never again play. The Saudis are also careful to explain that they have no claim on the Pakistani nuclear program, despite decades of rumors to the contrary, that like any self-respecting state, Pakistan guards its arsenal jealously, and that the only Saudi plan for nuclear development is to improve the nation’s indigenous technological capabilities.

These claims are difficult to accept at face value for two main reasons. First, both Riyadh and Islamabad have every incentive to hide the extent of their nuclear cooperation. If a nuclear transfer were exposed, the two states would not only feel the wrath of the international community for breaking rules enshrined in the Nuclear Nonproliferation Treaty (NPT), but they would also give Iran new reasons to accelerate its own nuclear-weapon development—precisely the outcome that Riyadh would prefer to avoid.

Second, if Iran does actually cross the nuclear-weapons threshold, Riyadh has signaled that it would stop at nothing to match Tehran’s feat—and fast. At present, the only realistic, cost-effective, quick way for Riyadh to make good on that threat is through a Pakistani nuclear transfer. No other nuclear state has as intimate a security relationship with Saudi Arabia, and Riyadh currently lacks the wherewithal to build an arsenal of its own.

In that hypothetical scenario, time would be of the essence. If the Pakistanis were to transfer warheads to the Saudis immediately after Iran goes nuclear, the international backlash would probably be muted, with primary blame assigned to Iran for starting the proliferation chain reaction. If, however, the Saudis take months or years to ready their own nuclear capability or negotiate a transfer from Pakistan, both Riyadh and Islamabad would almost certainly run up against a concerted international effort to close the nuclear door after Iran’s breakout. There are other good reasons for Riyadh to want to be able to move quickly. Armed with an immediate and dramatic counter to Iran’s new nuclear status, Riyadh would steal Tehran’s thunder, deny Iran a coercive advantage, and enter a marginally more stable world of nuclear deterrence from day one.

Just how Pakistan would transfer a nuclear capability to Saudi Arabia is a matter of some speculation. A dual-key arrangement with a contingent of Pakistani nuclear forces based in Saudi Arabia would hold some advantages, including that it might not technically violate the NPT (in the same way as U.S. nuclear forces have historically been based within nonnuclear allied territories). Such a deal would require a significant Pakistani military footprint inside Saudi Arabia, presumably a development that might be spotted by U.S. and other intelligence services.

At least as likely, however, both Riyadh and Islamabad would prefer to mask their cooperation, with the Saudis claiming, if implausibly, that they had developed their own indigenous nuclear capability, and the Pakistanis denying any involvement. At best, these fabrications would offer a diplomatically convenient way for states—possibly even the United States—to keep the punitive focus squarely on Iran, rather than on Pakistan or Saudi Arabia.

In almost any conceivable instance of a Pakistani nuclear transfer to Saudi Arabia, Pakistan’s leaders would have to be convinced that they could survive the consequences with neighboring Iran. Pakistan has already suffered a great deal from being caught between Iran and Saudi Arabia. Their sectarian rivalry was exported to Pakistan in the 1980s, when both sides indoctrinated, trained and funded brutal militant proxy groups, in turn contributing to a vicious cycle of communal separation that persists to this day. In 2013 alone, 650 Pakistanis died and over 1,100 were injured in Sunni-Shia violence. Like most acts of terrorism, the death toll pales in comparison to its broader political consequence; Pakistan’s sectarian attacks threaten to shred the unity of a nation nominally founded as an inclusive homeland for South Asian Muslims.

Although there is no longer evidence of official Saudi support to these groups, Pakistanis complain bitterly about private Saudi donations to mosques, madrassas and organizations behind the attacks, and many also fear that Iran could do much more to fuel reprisal attacks by Shia hit squads if Tehran wanted to cause trouble for Pakistan. In the past, Iran has also turned up the pressure on Pakistan in other ways, including by working closely with India to support proxy groups in Afghanistan and by allowing India to use the port of Chabahar along the Arabian Sea as a means to circumvent Pakistan and gain overland access to Central Asia.

Such concerns will almost certainly continue to lead Islamabad to play a diplomatic balancing act in its dealings with Tehran. That said, if Islamabad judges the potential for an Iranian nuclear breakout to be low and believes that preliminary nuclear dealings with Saudi Arabia (prior to the unveiling of an actual nuclear transfer) can be covert and deniable, then the immediate benefits of an offer from Riyadh would be nearly impossible for Pakistani leaders to resist. This is almost certainly the situation they face today.

Consequential New Links for Riyadh…and for South Asia

To make sense of Saudi Arabia’s geopolitical options now and into the future, it will be increasingly necessary to take Riyadh’s relationships with India and Pakistan into account. This holds true even though the primary battleground for Saudi-Iranian rivalry remains the Middle East, and Saudi-U.S. military and intelligence cooperation will persist for years to come. Keeping New Delhi from closer ties with Tehran will be crucial as India grows into a global economic, political, and military power. Utilizing Pakistan as a counter to Iran’s threats at the opposite ends of the security spectrum—terrorist proxies and nuclear weapons—will be even more vital to Riyadh.

The potential for a nuclear transfer from Pakistan to Saudi Arabia is by far the most consequential aspect of Riyadh’s dealings in South Asia. Although fraught with risk, the looming threat of a transfer from Pakistan to Saudi Arabia also holds potential advantages. The more credible the threat, the more Tehran will need to take it into account as it calculates the strategic benefits of crossing the nuclear-weapons threshold. Combined with the threat of Israeli air strikes on Iranian nuclear facilities, the risk of a broader nuclear domino effect in the region would also help to motivate other states to enforce the sanctions regime against Iran until a deal is done.

Like any deterrent policy, the greatest costs would be suffered only if it fails; that is, if Iran rejects or circumvents a nuclear deal. Even then, however, the regional-security picture would be made only incrementally worse by the simultaneous emergence of two new nuclear states as compared to a lone Iranian breakout. If anything, the regional nuclear balance against Iran would be easier to maintain, and less of the weight would rest on Israel’s shoulders.

Nuclear issues aside, Riyadh is successfully finding other ways to harness its relationships in South Asia. Whether by purchasing Pakistan-made arms for Syrian rebels, securing favorable Indian votes in the IAEA, or closing potential loopholes in the Iran sanctions regime, the Saudis have played South Asia more effectively than the Iranians have. Riyadh will continue to hold important tools of influence in both Islamabad and New Delhi because of its wealth, energy supplies and status as host to an enormous population of visiting South Asian workers who collectively send home billions in remittances each year.

Viewed from the South Asian perspective, Saudi Arabia’s regional security policy will always be judged by how it plays into the Indo-Pakistani context. There are reasons to hope that Riyadh can play a stabilizing role. For instance, if Saudi counterterror cooperation with New Delhi on Indian-born LeT operatives is just a start, then Riyadh will have other strings to pull as well, from controlling financial networks to limiting travel within its borders, that could also be directed against groups like the Haqqani network that have attacked Indians in Afghanistan. A more muscular Saudi campaign against these groups would improve security in India and would also send a firm message to sympathizers and backers inside Pakistan that the use of terrorist proxies against India is no longer something Riyadh condones.

On the other hand, if such Saudi moves are not handled with great care, they would backfire by contributing to Pakistan’s security anxieties and sense of isolation. For India, unofficial Saudi support to Salafist groups in South Asia and Riyadh’s defense ties to Pakistan will undoubtedly worry policy makers in New Delhi. All told, Riyadh’s pursuit of closer relationships with both India and Pakistan, without being sucked into the paralysis of their own hyphenated (Indo-Pakistani) conflict, will require great diplomatic finesse.

How Washington Should Play the New Saudi Game in South Asia

The United States has never been able to dictate or control Saudi Arabia’s foreign policy, but Washington retains unparalleled diplomatic access to Saudi leadership—owing in part to billions in high-tech defense sales—that affords U.S. policy makers a chance to explain their priorities and interests with respect to South Asia. Washington should make South Asia a regular focal point in future dialogues with Saudi senior leaders.

Although there will be a strong temptation to try and dissuade the Saudis from pursuing a nuclear-weapons capability via Pakistan, that approach will almost certainly be a waste of time. Washington should accept that the Saudis (like the Pakistanis before them) will try to go nuclear if they believe their mortal enemy will otherwise enjoy an overwhelming strategic advantage. Neither sales of conventional armaments, nor realistic U.S. security guarantees will solve Riyadh’s security dilemma. For the United States, the preferred means by which to reduce the likelihood of a Saudi nuclear program will be by successfully concluding and implementing a serious deal with Tehran.

U.S. officials should instead make the best of the Saudi-Pakistani nuclear nexus by embracing the threat as a deterrent against Iran as well as potential defectors from the present international sanctions regime. Through diplomatic channels with friends, allies and the Iranians themselves, U.S. officials should quietly share the assessment that a nuclear transfer between Pakistan and Saudi Arabia is a realistic scenario and nearly impossible to forestall if Iran crosses the threshold. At the same time, U.S. officials should explain that they do not anticipate a Pakistani-Saudi transfer under any other circumstances, given the costs that both Islamabad and Riyadh would incur from moving first.

Separately, Washington should use secure channels to communicate to the Pakistanis and Saudis that as long as any potential nuclear transfer takes place only after an Iranian breakout, the principal U.S. concern would be the safety and security of nuclear materials in transit and after deployment in Saudi Arabia. In the unlikely event that either Riyadh or Islamabad is willing to discuss the topic at length, perhaps as a hypothetical scenario or in a Track II setting, U.S. officials should try to ferret out how the Saudis understand the challenge of balancing a nuclear Iran and how the Pakistanis envision their own ability to weather the likely Iranian reaction. U.S. wargaming exercises that play out the post-nuclear regional balance would be useful ways to inform those conversations.

On other fronts, the deepening of counterterror cooperation between Saudi Arabia and India serves U.S. interests and should be advanced along two tracks in Washington’s dealings with Riyadh. First, U.S. officials should work to improve operational intelligence sharing so that South Asian terrorists like Ansari are more easily tracked, apprehended and extradited. A three-way Saudi-U.S.-Indian counterterror dialogue and standing intelligence coordination cell should be started to advance this effort.

Second, Washington should continue using diplomatic, financial, law enforcement and intelligence ties with the Saudis to press the point that Pakistan-based terrorists, including those lacking direct Al Qaeda ties, represent a significant threat to regional and international security. Despite past efforts, U.S. officials have never managed to translate the aggressive post-9/11 security measures the Saudis have used at home against Al Qaeda into a wider campaign that would dry up resources flowing to other groups engaged in terrorism. Part of the problem is that neither Riyadh, nor Islamabad wishes to pick new fights with the full array of radical groups they now face. Another part of the problem is that both Pakistan and Saudi Arabia also have a long history of using terrorist groups as proxies, and a persistent difficulty drawing lines between the radical organizations they support and those they oppose. Pakistan, for instance, has always tried to differentiate between “good Taliban” and “bad Taliban,” defining different militant groups not by their worldview, but by whether they serve or oppose Islamabad at any given time.

In today’s Syria, a similar problem has emerged. Whereas Washington is acutely concerned that arming anti-Assad groups could easily have Afghanistan-like repercussions, Saudi support (including training rebels and supplying weapons of Pakistani origin) appears to be more focused on the short term. Because the United States shares the basic Saudi desire to remove Assad from power, Washington should first aim to monitor and direct, but if necessary, also to curtail, the flow of Pakistani weapons and trainers in an effort to keep them away from radically anti-Western groups. The paucity of Syrian “moderates,” the stunning battlefield successes of the Islamic State in Iraq and Syria (ISIS), and shifting wartime politics will make this more easily said than done. More

 

 

© 2014