Thousands of migrant labourers from North Korea are toiling for years on construction sites in Qatar for virtually no pay – including on the vast new metropolis that is the centrepiece of the World Cup – in what may amount to “state-sponsored slavery”.
According to testimonies from workers and defectors, labourers from the reclusive state said they receive almost no salaries in person while in the Gulf emirate during the three years they typically spend there.
They work in the expectation they will collect their earnings when they return to North Korea, but according to a series of testimonies from defectors and experts, workers receive as little as 10% of their salaries when they go home, and some may receive nothing. One North Korean worker at a construction site in central Doha told the Guardian: “We are here to earn foreign currency for our nation.”
The North Korean regime, led by Kim Jong-un, is currently subject to international sanctions as it continues to defy calls to end its nuclear programme and address severe human rights abuses. A recent UN report accused the regime of crimes against humanity. The foreign currency earned by its overseas workforce is a crucial tool for propping up the isolated country’s fragile economy.
In the sprawling construction zone that will eventually become Qatar’s gleaming $45bn (£28bn) Lusail City, where the 2022 World Cup final will be held, four construction sites are said to be using North Korean workers, although there is no suggestion they are involved in building World Cup stadiums.
On one site, North Koreans battled biting desert sands and searing heat to construct a luxury residential tower. They laboured on as day turned to night, long after workers from other nationalities had left the site.
One North Korean worker helping to build the high-rise said: “People like us don’t usually get paid. The money does not come to the person directly. It’s nothing to do with me, it’s the [North Korean recruitment] company’s business.”
A project manager of the lavish development said the workers “don’t have a single rial themselves” and “borrow money from us if they need small things like cigarettes”.
“The descriptions of the conditions North Korean workers endure in Qatar – abuse of vulnerability, withholding of wages and excessive overtime – are highly indicative of state-sponsored trafficking for forced labour,” a modern form of slavery, said Aidan McQuade, the director of Anti-Slavery International.
Sources in Qatar estimate there may be as many as 3,000 North Koreans working on projects across the emirate. They are part of an army of workers the North Korean regime exports around the world to bring in much-needed foreign currency. According to defectors’ groups, there may be as many as 65,000 North Koreans abroad, mainly working in Russia, China, Mongolia and the Middle East.
Kim Joo-il, a former army officer who escaped North Korea in 2005, estimates that the Pyongyang government typically takes 70% of the total salary of workers abroad, and that after all “fees”, notionally for food and accommodation, have been paid, workers will be left with only 10% of their salary.
According to a report by the North Korea Strategy Centre, a defector-run organisation based in South Korea: “Almost all of the wages of the workers sent abroad are remitted back to Kim Jong-un’s regime … in very extreme cases, the workers are allowed to have 10% of their wages.”
Two employees of state-run North Korean recruitment firms operating in Qatar admitted that their workers do not receive their salaries in person, but insisted a proportion of their wages are sent back to the workers’ families in North Korea.
Earlier this year, in its annual Trafficking in Persons report, the US state department criticised the treatment of foreign workers sent to earn foreign currency by the regime. It said that many North Korean Workers were subject to forced labour, their movements and communications conducted under surveillance, and that they face threats of government reprisals if they attempt to escape or complain. “Workers’ salaries are deposited into accounts controlled by the North Korean government, which keeps most of the money … workers only receive a fraction of the money paid to the North Korean government for their work,” the report said.
Qatar’s treatment of its migrant labourers has come under increasing scrutiny as it gears up for the 2022 World Cup, following a Guardian report last year that revealed widespread deaths and abuse among migrant workers. In May 2014 the emirate announced a series of reforms to improve their living and working conditions.
A spokesperson from the ministry of labour and social affairs said: “We take all issues around worker payment extremely seriously. There are currently 2,800 North Korean guest workers registered in Qatar and we have no recorded complaints about their payment or treatment. Qatar is determined to continually improve labour conditions for all who work in the country, and will continue to work with NGOs, businesses and other governments to achieve this.”
(John Kemp is a Reuters market analyst. The views expressed are his own)
By John Kemp
Nov 4 (Reuters) – Saudi Aramco cut the price of December crude deliveries to U.S. refiners on Monday in order to protect its competitiveness amid an erosion of its U.S. market share by rival exporters such as Canada and Iraq.
In August, U.S. crude imports from Saudi Arabia slipped below 900,000 barrels per day, according to the U.S. Energy Information Administration.
With the exception of a brief period in 2009 and early 2010, Saudi exports to the United States fell to the lowest level since 1988 (link.reuters.com/jez33w).
U.S. imports from Saudi Arabia in August were just 70 percent of the average level for the past ten years which has been around 1.3 million barrels per day.
Saudi oil, which is priced at a differential to a U.S. sour crude marker, had become too expensive compared with alternatives available to U.S. refiners.
So Saudi Aramco has been forced to cut the differentials for U.S. refiners by between 45 and 50 cents (depending on grade) per barrel even as it raised differentials for refiners in Europe and Asia.
Some commentators have interpreted the U.S. price cuts as a signal the kingdom is initiating a deliberate price-war targeting U.S. shale producers. The reality is more complex.
Most Saudi exports to the United States are much heavier and certainly sourer than the light sweet oils being produced from shale formations like North Dakota’s Bakken and Texas’ Eagle Ford.
Aramco has therefore been spared head-to-head competition from rising U.S. shale output, which has mostly fallen on U.S. imports from West Africa.
However, the company’s market share over the summer was hit by competition from Iraq, Venezuela, Brazil and Canada, so Aramco has cut its prices in the region to stabilize sales and buy back some of its lost share.
Saudi Aramco prices its crude sales against different benchmarks in the United States, Europe and Asia and applies a different set of differentials in each region to reach a final selling price.
Past experience suggests differentials are primarily used to offset variations between the regional benchmarks to ensure Aramco’s crude sells at broadly the same price in each region.
Final selling prices vary much less between the regions than the differentials themselves.
For example, the differentials for Arab Medium grade delivered in December range by more than $4 per barrel from a discount of $5.00 in Europe and $1.60 in Asia to a discount of just 65 cents in the United States.
But the outright prices (benchmark plus or minus the differential) currently range just over $2 between the most expensive region (Asia) and the cheapest (the United States).
For Arab Light, the differentials vary by $4.95 per barrel, but outright sales prices currently vary by just $1.78.
Traders and refiners need liquid benchmarks to hedge their exposure to fluctuations in crude. But none of the benchmarks closely resembles the grades of oil marketed by Saudi Aramco, which is why the company has to apply large and variable monthly adjustments to its selling prices via the differentials.
Saudi Aramco’s marketers attempt to ensure (1) refiners buy all the cargoes which the company has on offer and (2) sales prices in the three regions are broadly equalised.
The first point is obvious. Saudi oil has to be priced competitively with other similar grades or refiners will buy something else instead.
The second is more subtle. Saudi exports are protected against inter-regional arbitrage by destination clauses: oil sold to a refiner in the United States cannot be diverted and resold to a refiner in Asia.
But other crudes can be arbitraged between the regions and so can the final products produced from refined oil.
Refiners are all, to some extent, competing against one another in both the market for buying crude and in the sale of refined products.
Aramco must price its crude to ensure its customers are not put at a competitive disadvantage in either market.
While most Saudi oil is sold on long term contracts (with market-linked pricing) Aramco would rapidly lose customers if its oil proved to be expensive compared with other grades.
The potential for arbitrage in both crude and product markets ensures that inter-regional differences in final selling prices are ordinarily no more than $2-3 per barrel.
ARAMCO IS REACTIVE
Changes in official selling prices are often interpreted as evidence of a “grand strategy” for market management by senior policymakers in Riyadh and Dhahran.
For the most part, however, Saudi Aramco’s pricing strategy is reactive rather than proactive. The company adjusts differentials in response to current and forecast market conditions to maintain the competitiveness of its oil sales.
At the margin, Saudi Aramco can adjust differentials to push slightly more oil into the market or hold sales back, as well as to alter the balance of sales between regions.
But most of the changes in differentials are driven by the need to react to external events (such as refining demand and the availability of competing crudes) rather than Saudi strategy.
The distribution of Saudi sales to the three regions displays a high degree of stability over time (in contrast to the differentials themselves).
In the case of the United States, Aramco’s crude was too expensive in June, July and August, and export volumes slumped by almost 700,000 barrels per day.
Like any other marketer, to reverse some of those losses, Aramco has cut its differentials to make its oil more attractive.
The price cuts will intensify the competitive pressure on U.S. shale producers, but that is an indirect consequence of the policy, not its primary objective, which is to maintain market share.
In any event, the Americas accounted for less than 20 percent of Saudi exports in 2013, according to the U.S. Energy Information Administration.
In the much larger Asian market, which accounted for almost 70 percent of sales in 2013, where Aramco’s oil has been competitive, the company has actually boosted differentials for December sales by around $1 per barrel.
Changes in differentials in the U.S. market are not a sign that Saudi Aramco is declaring a volume war on U.S. shale producers or other oil exporters (any more than differential increases in Asia signal the opposite).
But that might be the unintended consequence if everyone tries to defend their market share. Sooner or later someone somewhere has to cut: whether it is the Saudis and OPEC, non-OPEC suppliers like Canada, U.S. shale producers, or all of them. (Editing by Clara Ferreira Marques)
25 years ago, Hungary was being toasted in the West for opening its border with Austria to East Germans, in a move which led to the fall of the Berlin Wall. Now the Western elites are not happy with Budapest which they consider far too independent.
The refusal of Prime Minister Viktor Orban and his ruling Fidesz party to join the new US and EU Cold War against Russia, which has seen the Hungarian parliament approving a law to build the South Stream gas pipeline without the approval of the European Union, in addition to the populist economic policies Fidesz has adopted against the largely foreign owned banks and energy companies, has been met with an angry response from Washington and Brussels.
Hungarian officials have been banned from entering the US, while the European Commission has demanded that the Hungarians explain their decision to go ahead with South Stream. That’s on top of the European Commission launching legal action against the Hungarian government for its law restricting the rights of foreigners to buy agricultural land.
The bullying of Hungary hasn’t made many headlines because it’s so-called “democrats” from the West who have been doing the bullying.
Viktor Orban is not a communist, he is a nationally-minded conservative who was an anti-communist activist in the late 1980s, but the attacks on him and his government demonstrate that it doesn’t matter what label you go under – if you don’t do exactly what Uncle Sam and the Euro-elite tell you to do – your country will come under great pressure to conform. And all of course in the name of “freedom” and “democracy.”
Fidesz has been upsetting some powerful people in the West ever since returning to power in 2010. The previous “Socialist”-led administration was hugely popular in the West because it did everything Washington and Brussels and the international banking set wanted. It imposed austerity on ordinary people, it privatized large sections of the economy, and it took out an unnecessary IMF loan. Ironically, the conservative-minded Fidesz party has proved to be much better socialists in power than the big-business and banker friendly “Socialists” they replaced.
One of the first things that Fidesz and its coalition allies, the Christian Democratic People’s Party, (KDNP) did was to introduce an $855m bank tax – the highest such tax in Europe – a measure which had the financial elite foaming at the mouth.
Orban clashed with the IMF too, with his government rejecting new loan terms in 2012, and paying off early a loan taken out by the previous government, to reduce interest payments.
Hungary’s Prime Minister Viktor Orban (Reuters / Bernadett Szabo)
In 2013, Orban took on the foreign-owned energy giants with his government imposing cuts of over 20% on bills. Neoliberals expressed their outrage at such “interventionist” policies, but under Orban, the economy has improved. Although it’s true that many still look back nostalgically to the days of “goulash communism” in the 1970s and 80s when there were jobs for all and food on the table for everyone. Unemployment fell to 7.4 percent in the third-quarter of this year; it was around 11 percent when Fidesz took power, while real wages rose by 2.9 percent in the year up to July.
The man his enemies called the “Viktator,” has shown that he will pursue whatever economic policies he believes are in his country’s national interest, regardless of the opinions of the western elite who want the Hungarian economy to be geared to their needs.
His refusal to scrap his country’s bank tax is one example; the closer commercial links with Russia are another. Russia is Hungary’s third biggest trading partner and ties between the two countries have strengthened in the last couple of years, to the consternation of western Russophobes. In April, a deal was struck for Moscow to loan Hungary €10 billion to help upgrade its nuclear plant at Paks.
Orban’s policy of improving trade and business links with Russia, while staying a member of the EU and NATO, has however been put under increasing strain by the new hostile policy towards Moscow from Washington and Brussels.
Orban again, has annoyed the West by sticking up for Hungary’s own interests. In May he faced attack when he had the temerity to speak up for the rights of the 200,000 strong Hungarian community living in Ukraine.”Ukraine can neither be stable, nor democratic, if it does not give its minorities, including Hungarians, their due. That is dual citizenship, collective rights and autonomy.” Hungary’s Ambassador was summoned to the Foreign Ministry in Kiev. Donald Tusk, Prime Minister of Poland, the US’s most obedient lapdog in Eastern Europe, called Orban’s comments “unfortunate and disturbing” as if it was anything to do with him or his country.
In August, Orban accurately described the sanctions policy of the West towards Russia as like “shooting oneself in the foot.”“The EU should not only compensate producers somehow, be they Polish, Slovak, Hungarian or Greek, who now have to suffer losses, but the entire sanctions policy should be reconsidered,” Orban said.
In October, Hungarian Foreign Minister Peter Szijjarto also questioned the sanctions on Russia, revealing that his country is losing 50 million forints a day due to the policy.
Hungary has made its position clear, but for daring to question EU and US policy, and for its rapprochement with Moscow, the country has been punished.
It’s democratically elected civilian government which enjoys high levels of public support, has ludicrously – and obscenely – been likened to military governments which have massacred their opponents. “From Hungary to Egypt, endless regulations and overt intimidation increasingly target civil society,” declared US President Barack Obama in September.
Last month there was another salvo fired at Hungary – it was announced that the US had banned six unnamed Hungarian government officials from entering America, citing concerns over corruption- without the US providing any proof of the corruption.
RIA Novosti / Ramil Sitdikov
“At a certain point, the situation, if it continues this way, will deteriorate to the extent where it is impossible to work together as an ally,” warned the Charge D’Affaires of the US Embassy in Budapest, Andre Goodfriend. The decision and the failure to provide any evidence, understandably caused outrage in Hungary. “The government of Hungary is somewhat baffled at the events that have unfolded because this is not the way friends deal with issues,” said Janos Lazar, Orban‘s chief of staff.
The timing of the ban has to be noted, coming after the Hungarian government had criticized the sanctions on Russia and just before the national Parliament was due to vote on the South Stream pipeline. The pipeline, which would allow gas to be transported from Russia via the Black Sea and the Balkans to south and central Europe without passing through Ukraine, is a project which Russophobes in the West want cancelled.
“I am inclined to think that it is a punishment for the fact that we talk to Russia,” said Gabor Stier, the head foreign policy editor of the leading Hungarian newspaper Magyar Nemzet.
“America thinks that we are corrupt, but we are a sovereign state, and it is our business. Many people in the United States do not like that Viktor Orban is very independent…..Corruption is just an excuse.”
It’s hard to disagree with Stier’s conclusions. Of course, there is corruption in Hungary, as there is in every country, but it pales in comparison with some countries who are faithful US allies and who Washington never criticizes. The 2013 Corruption Perceptions Index compiled by Transparency International, reveals that Latvia, the Czech Republic, Croatia, Romania, Bulgaria and Bosnia-Herzegovina are all below Hungary, as indeed is Italy. Yet it’s Hungarian officials that the US is banning.
True to form, the attacks on Orban and his government in the Western media have chimed with the political attacks. ‘Is Hungary, the EU’s only dictatorship?’ asked Bloomberg View in April. The BBC ran a hostile piece on Orban and Fidesz in October entitled Cracks Emerge in leading party, and which referred to “government corruption” and “the playboy lifestyle of numerous party officials.”
The piece looked forward to the end of Fidesz rule.
While earlier this week, the New York Times published an OpEd by Kati Marton, whose late husband Richard Holbrooke, was a leading US diplomat, entitled Hungary’s Authoritarian Descent. You’d never guess that the Hungarian government wasn’t the flavor of the month in the West would you?
Russian Foreign Minister Sergei Lavrov, left, and Hungarian Prime Minister Viktor Orban at their meeting in Budapest (RIA Novosti / Eduard Pesov)
The question which has to be asked is: will Hungary be the next country to be the target of a US/EU sponsored regime change?
We all know what happened to the last Viktor who refused to sever links with Russia. Will Orban suffer the same fate as Ukraine’s Yanukovich? There are good reasons for believing that he won’t.
Fidesz did make a mistake by announcing the introduction of a new internet tax last month, which brought thousands onto the streets to protest but they have since dropped the plans and the problem for the US and EU is that Orban and his government remain too popular. In October’s local elections Fidesz won 19 of Hungary’s 21 larger towns and cities, including the capital city Budapest, not bad for a party that‘s been in power since May 2010.
Orban’s brand of economic populism, combined with moderate nationalism, goes down well in a country where people remember just how awful things were when the neoliberal “Socialists” were in power. His style of leadership may be authoritarian, but Hungarians prefer having a leader who has cut fuel bills and reduced unemployment to one who mouths platitudes about “liberal democracy” but who imposed harsh austerity measures and leaves them unable to afford the daily essentials.
Moreover Hungary, is already a member of the EU and NATO unlike Ukraine under Yanukovich and isn’t about to leave either soon. On a recent visit to America Foreign Minister Peter Szijjarto told the US TODAY newspaper “US is our friend, US is our closest ally.” The US clearly wants more from Hungary than just words, but while both Washington and Brussels would like to see a more obedient government in Budapest, the “liberal” and faux-left parties they support simply don’t have enough popular support for the reasons outlined above. And things would be even worse for the West if the radical nationalist party Jobbik, the third largest party in Parliament, and which made gains in October’s local elections, came to power- or if there was a genuine socialist/communist revival in the country. The fact is that Orban is in a very strong position and he knows it. That’s why he feels able to face down the threats from abroad and maintain a level of independence even though total independence is impossible within the EU and NATO.
We can expect the attacks on Orban and his government to intensify but the more the West attacks, the more popular Orban, who is able to present himself as the defender of Hungary’s national interests, becomes.
Hungary gave the West everything it wanted in 1989, and, as I pointed out here, its “reform” communist leadership was richly rewarded. But in 2014 it’s a very different story. In the interests of democracy and small countries standing up to bullying by powerful elites, long may Hungary’s spirited defiance continue.
Hajra, magyarok! Hajra Magyarorszag!
The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of RT.
Washington is exerting heavy pressure on Hungary over the country’s decision to give a green light for the construction of the South Stream gas pipeline and expedite the construction by allowing companies without licenses to participate in the project.
“The US is putting Hungary under great pressure fearing Moscow’s rapprochement with Budapest,” Hungarian media cited Prime Minister Viktor Orban saying in Munich, Germany after a meeting with Bavarian state premier Horst Seehofer.
Orban said that Hungary’s relations with Russia have become “entangled in geopolitical and military and security policy issues,” AFP reports. The PM said that US is retaliating for Budapest’s willingness to endorse the South Stream gas pipeline development as well as a deal that would see Russia’s Rosatom expand Hungary’s nuclear power.
Under a deal worth up to €10 billion Rosatom will build a 2,000 megawatt addition to Hungary’s state-owned nuclear power plant MVM Paksi Atomeromu. Russia is Hungary’s largest trade partner outside of the EU, with exports worth $3.4 billion in 2013. Also it is highly dependent on Russian energy.
“We don’t want to get close to anyone, and we don’t intend to move away from anybody,” Orban said. “We are not pursuing a pro-Russian policy but a pro-Hungarian policy,” as expansion of the nuclear plant was the “only possible means” to lower dependence on external energy resources.
The PM remained firm that “cheap energy is key in strengthening Hungary’s competitiveness” as he also defended the law which gave a green light for the construction of the South Stream pipeline that would bypass Ukraine as a transit nation in EU gas supply chain.
It “ensures Hungary gas supplies by eliminating risks posed by situation in Ukraine,” Orban said. “Even if South Stream does not diversify gas sources, it diversifies delivery routes.”
But Monday’s move by Budapest on the gas project angered Brussels as the EU threatened to fine member states if they violate sanctions and pursue construction of South Stream Pipeline.
Orban, who on previous occasions has called Western sanctions on Russia “counterproductive” has faced fury from Washington.
The attacks on Viktor Orban and his government “demonstrate that it doesn’t matter what label you go under – if you don’t do exactly what Uncle Sam and the Euro-elite tell you to do – your country will come under great pressure to conform. And all of course in the name of freedom and democracy,” journalist and writer Neil Clark told RT.
Washington may also be worried that Hungarian energy firm MOL will sell its 49 percent stake in Croatia’s energy giant INA to a Russian firm, Reuters reported. The Hungarian state has a 24.7 percent stake in MOL. Earlier Washington blacklisted six people with ties to the Hungarian government from entering the United States, accusing them of involvement in corruption.
HRH Prince Turki Al Faisal Royal Air Force Molesworth UK
Thank you so much for inviting me to speak at the Royal Air Force Molesworth. As some of you may know, the ground on which RAF Molesworth now stands was used during World War I as an airstrip, but was then abandoned. The, between 1940 and 1941, as World War II got under way, the base was built again in order to house the growing British war machine. It was also in the same time period that the search for oil began in Saudi Arabia. And the concurrence of these two events is a very telling historical symmetry. For just as the free world began joining together to repel the forces of evil, so did Saudi Arabia ally itself with the free world to provide some of the energy that the fighting would require. And so are we still allied to this very day.
Now, the goal of my speech today is to outline a general Saudi National Security Doctrine for the next decade. But before I begin, I wish to recount a short story that highlights an important issue in global relations. It is an issue that is central to our efforts to bring about joint operations that enhance security, which, in our interconnected world, requires ever-deeper levels of cooperation. It is at the core of our efforts to collaborate, share, and benefit from one another’s experiences and skills. I am speaking, of course, of nudity.
Please allow me to explain. It was nearly six years ago that I had the pleasure of being officially introduced to then United States Secretary of State Condoleezza Rice. Upon handing her a copy of my credentials, I told her that our meeting reminded me of an occurrence that took place between Winston Churchill and Franklin Roosevelt during the Second World War. That year Churchill had come to the US to discuss America’s increased involvement in World War II, and Roosevelt, to pay homage to Churchill’s importance and the gravity of the trip, decided to put him up at the White House instead of Blair House. One morning during his stay, Roosevelt rolled into Churchill’s room and found him walking about fully naked, or “starker’s” as the English say. When Roosevelt quickly attempted a backwards retreat, Churchill stopped him and said, “Mr. President, the Prime Minister of England has nothing to hide from the President of the United States.”
You can perhaps imagine the look on the face of Secretary of State Rice when I finished re-counting this anecdote. It was what one might call politely controlled trepidation. But I briskly allayed her fears by making clear that she need not fear my ever presenting myself “starker’s” before her, but that this was simply the kind of relationship I wanted Saudi Arabia to have with the United States. One based on that all-important concept in the arena of global terrorism and intelligence -nothing to hide.
So is it in due service to the role of nudity, or nothing to hide in international security collaborations, that I wish to outline for you today the Kingdom’s National Security Doctrine for the Next Decade. Saudi Arabia has nothing to hide from the world and knows that the less we are frightened by revelations, reassured through mutual transparency, and comfortable with what we see when we truly look at one another, the more we will savour the fruits of our efforts.
With that, I shall now retreat, Roosevelt-like, from the world of innuendo and advance into the particulars of Saudi national security, which I shall structure according to the following main themes: external security, internal security, and energy security. External security involves our affairs with other nations, internal security relates to preventing political instability and promoting social cohesion, and energy security has less to do with simply defending oil fields and much more to do with our overall energy production policy as it is designed to maintain stable markets. And, of course, I should mention that in all these areas Islam must play a central, yet developmental, role.
Before I get into particulars, let me say that Saudi Arabia, with its stability and influence, feels it is positioned to play an important regional and international role. Working diligently to successfully address many of its major domestic concerns, the Kingdom has turned outward with a newfound confidence and inward with an ever-vigilant eye toward its own internal safeguarding.
Why does the Kingdom now feel such confidence? for a number of reasons. She is the cradle of Islam, a religion that has today an estimated 1.2 billion adherents. Saudi Arabia represents over 20% of the combined GDP of the Middle East-North Africa (MENA) region (and an estimated quarter of the Arab World’s GDP according to the latest IMF numbers) making it the economic engine of the region and the logical choice to be a permanent influential member of the G20. The Saudi stock market represents about 50% of the entire stock market capitalization of the MENA region and the listed Saudi companies make up 5 of the top 10 companies in the region with the top two slots being the Saudi conglomerates, Aramco and Sabic. The Saudi Arabian Monetary Agency (SAMA), the Kingdom’s central bank, is the world’s third largest holder of foreign exchange reserves managing just under $550 Billion. Last but not least, Saudi Aramco, the Kingdom’s national oil company, is the world’s largest producer and exporter of petroleum and has by far the world’s largest sustained production capacity infrastructure at about 12.5 million barrels-per-day and also has the world’s largest spare capacity currently estimated at over 4 million barrels-per-day or about 70% of global unused capacity.
Along with these impressive numbers, our nation is a peninsula, not an island. And a look at our neighbours reveals significant challenges that fall under the rubric of my first over-riding national security theme – external security. The rising Gulf economies – such as Abu Dhabi, Dubai and Kuwait – suffered considerably during the 2008-2009 global recession and will take a while to regain their footing. The Israeli/Palestinian issue is likely to remain difficult for years. Iraq continues to struggle to ensure security and stand on its own with a legitimate government after a devastating war. Iran presents a host of problems and has major domestic stability issues of its own. And, of course, all around the Arab world – in Tunisia, Egypt, Libya, Syria, Yemen, Bahrain, and beyond – nations are facing uprisings that have crumbled or may crumble their governments.
Our overall goal vis-à-vis other nations is to strengthen our allies in the region and beyond and to assist in whatever way we can to help our neighbours maintain stability. Saudi Arabia firmly believes that peace in the region, and a conclusion to various longstanding, conflict-resolution efforts must be a primary objective of the next decade. This peace will only be achieved through cooperation that is built on trust, dialogue and engagement. This is why Saudi Arabia will continue to take the lead in negotiating between and with conflicting parties and nations. Furthermore, the Kingdom firmly believes that the next decade’s most vital security issue is progress. There must be economic and social progress for the people and of the governments of the Middle East so that peace, not conflict is clearly seen as the gateway to prosperity.
That said I do want to describe some specifics as we see them pertaining most directly to what our national security concerns will be over the next decade. The first issue I want to address, without preference to any prioritizing, is the issue of Iran. In a certain sense, Saudi Arabia and Iran are uniquely positioned to be at odds. Saudi Arabia has the world’s greatest petroleum reserves; Iran the second. Saudi Arabia is Custodian of the Two Holy Mosques and the birthplace of Islam, and as such feels it is the eminent leader of the wider Muslim world. Iran portrays itself as the leader of not just the Shiite world, but of all Muslim revolutionaries interested in standing up to the West.
Yet despite this seeming ideological canyon, Saudi Arabia really only has two concerns about Iran. First, it is in our interest that Iran does not develop a nuclear weapon, for their doing so would compel Saudi Arabia, whose foreign relations are now so fully measured and well assessed, to pursue policies that could lead to untold and possibly dramatic consequences. This is why, through various initiatives, we are sending messages to Iran that it is their right, as it is any nation’s right, and as we ourselves are doing, to develop a civilian nuclear program, but that trying to parlay that program into nuclear weapons is a dead end, and that wiser choices will result in wider riches. A Zone Free of Weapons of Mass Destruction is the best means to get Iran and Israel to give up nuclear weapons. Such a Zone must be accompanied by a rewards regime that provides economic and technical support for countries that join; plus a nuclear security umbrella guaranteed by the permanent members of the Security Council. It should include a sanctions regime that puts economic and political sanctions on countries that don’t join; plus military sanctions against those countries that try to develop weapons of mass destruction, also guaranteed by the permanent members of the Security Council.
Fortunately, the measures being directed at Iran from a variety of directions seem to be achieving their intended aim of slowing its progress in gaining such weapons. I agree with Secretary of State Clinton when she recently said that the sanctions are working. I also heartily agree with those in the international community who possess the blessed wisdom to know that military strikes would be entirely counter-productive. Indeed, it is important to remember that there are other non-military policy alternatives, as yet unexplored, that could have the desired result without the unwanted consequences. These policy alternatives would capitalize on the vulnerability of the Iranian government whose hold on power is only possible if it is able, as it barely is now, to maintain a level of economic prosperity that is just enough to pacify its people. To put the government’s vulnerability into perspective vis-à-vis our own, with only 1/3rd the population, Saudi Arabia makes three and a half times the oil revenues of Iran, yet oil revenues account for around 50% of Iranian government revenues. This is to say that Iran is very vulnerable in the oil sector, and it is there that more could be done to squeeze the current government to join the world in efforts toward peace.
The other concern we need to address in the coming decade is Iran’s general actions in the region. Iran is a paper tiger with steel claws. Its government is dysfunctional and Iranians protested and continue to protest their government’s disabilities. However Iran’s steel claws are effective tools that widen her capabilities to interfere in other countries. It’s meddling and destabilizing efforts in countries with Shi’ite majorities, such as Iraq and Bahrain, as well as those countries with significant Shi’ite communities, such as Kuwait and Lebanon, must come to an end. Saudi Arabia will oppose any and all of Iran’s actions in other countries because it is Saudi Arabia’s position that Iran has no right to meddle in other nations’ internal affairs. Indeed, Iran takes this position as well – it is very sensitive about other countries meddling in its affairs. But it should treat others like it expects to be treated. The Kingdom expects Iran to practice what it preaches. Finding solutions for the area’s conflicts is essential to deprive Iran of her interfering abilities. Palestine is a case in point. Without that issue, Iran has no capability to interfere.
One cannot discuss Iran without also mentioning Iraq. Iraq has a great history as a pivotal member of the Arab community. It has been, and it can still be, an important force in the Arab world. It is a founding member of the Arab League and OPEC, possessing vast natural resource wealth, and may some day be a major player in the energy markets. It sits at the heart of the Middle East and has a capable and diverse population. But much of its potential is being crushed by Iranian policies. Be it preferable to us or not, it is a new fact in the region that an Iraq that once waged a horridly bloody war against Iran has now become a significant arena of growing Iranian influence thanks to the aftermath of the US invasion. There are people and groups in Iraq that are, as much as they deny it, completely beholden to Iran, and that is not only unacceptable, but it is bad for the future of an ethnically and religiously diverse country. It is our goal that Iraq remains an active participant of the Arab world and throws off these destructive foreign influences.
This is the main reason why we continue to maintain the same distance from all Iraqi factions. However, let me point out that, because we still have serious, deep-seated reservations about the formation of the current government, we are the only country not to have sent an ambassador to Iraq. What is the cause of these reservations? Let me give you one example. Recently there was a certain Iranian general who, a week prior to the formation of the new government, was in Baghdad negotiating on behalf of the current Iraqi Prime Minister with the Shi’ite and Kurdish groups, seeking their support for the new mandate. These are the kinds of actions that are not missed by Saudi Arabia; we cannot agree with them, and we will do everything in our power to make them end. For instance, despite Baghdad’s considerable debts to Riyadh estimated at over $20 Billion, the Saudi government has pledged to forgive most of them, but this is dependent upon an end to the sectarian, Iran-influenced direction the country is taking. In short, it is the Kingdom’s full intention to continue to work with the people of Iraq to assure that their country becomes a stable, positive, and independent member of the Arab world.
I will now briefly address the current situation with one of Saudi Arabia’s closest neighbours, Yemen. For the Kingdom, and, indeed, the rest of the world, an increasingly unstable Yemen represents a very real security threat due to the potential for terror cells to take root there. This rough, rugged southwest corner of the Arabian peninsula, with a population of over 20 million, has been an arena for Al Qaeda operations since Osama bin Laden established training camps there in the 1990’s, and according to our intelligence sources, Al Qaeda’s influence is growing in the country. This is largely due to the fact that the Yemeni central government has little authority in the mountainous areas outside the capital and other cities. Extremists have reportedly made deals with local tribal leaders for supplies and protection, creating a sanctuary not unlike Pakistan’s Tribal Areas. The recent cargo bomb that was discovered, due to a strategic tip from the Saudi General Security Service, was bound for the US East Coast. It was assembled and put on board in Yemen.
While uprisings have recently rocked the country, alas, President Saleh has declined to agree to the Saudi led GCC mediation effort there. And so Yemen remains a serious issue for the Kingdom. Refugees fleeing the conflict flood across the border. Terrorism emerges from Yemen and crosses into the Kingdom. And should Yemen collapse, this could become an even greater security threat.
What are our plans for the coming decade vis-à-vis this volatile situation? We have, in essence, a tri-partite approach. First, we are working with our GCC partners to broker a peaceful transition from Saleh to a national unity government that will carry forward the task of drawing up a new constitution and end the conflict. The Kingdom has had a decades’ long program of economic and financial support for the Yemeni people. It is now on hold until the country settles down. We are strengthening our borders to prevent Yemeni refugees and Al Qaeda terrorists from crossing into our country while also increasing our counter-intelligence efforts to attempt to pinpoint and destroy Al Qaeda operatives in Yemen. Our work with the United States to eliminate the terrorist threat continues.
Let us now turn to the Kingdom’s approach to the volatile and important nations of Lebanon and Syria. Lebanon experienced a political sea change over a year ago when the March 14 coalition won the country’s parliamentary elections, taking 71 of 128 seats. The results underscored the true popularity of the March 14 groups vis-à-vis the “claimed” popularity of Hezbollah, and thus of Iran. King Abdullah’s visit to Lebanon showed the importance that Saudi Arabia places on Lebanese stability and security.
However, as we recently witnessed, Lebanon is very much on the brink of Civil War, as Hezbollah continues to push its agenda regardless of law and order. With the collapse of the Hariri government, we see to what extremes Hezbollah is willing to go, literally risking the very foundations of the nation, to prevent itself from being subject to the scrutiny of an international tribunal whose only goal is bringing fair justice upon those who perpetrated horrible assassinations. Saudi Arabia believes that law and order must prevail in Lebanon and supports all efforts to find the culprits behind the assassination of former Lebanese Prime Minister Rafik Hariri and 22 other people in Beirut.
This is why Saudi aid to Lebanon has increased greatly since the Israeli war in the summer of 2006. The Kingdom committed more than $1.5 billion shortly after the war ended for reconstruction and a major education initiative. This is a serious effort to rebuild a stronger, more stable Lebanon, but also an attempt to roll back the influence of Iran. Saudi leaders have for years pushed for the disarming of Tehran-backed Hezbollah and supported the government with nearly an extra $1 billion in financial support and credit for weapons purchases for the Lebanese Army, and we will continue to do so in the coming decade.
In terms of Syria, the political winds have proven unpredictable. In late 2009, Damascus laid out a dramatic welcome for King Abdullah, lavishing expansive coverage in state-run newspapers. King Abdullah’s visit was meant to foster better relations with Syria and bring President Bashar al-Assad away from the Iranian orbit. And while Saudi leaders boycotted an Arab League summit in Damascus in 2008, the two leaders met three times in 2009. Saudi Arabia re-posted its ambassador to Damascus that August, after an 18-month hiatus.
Unfortunately, recent talks between Saudi Arabia and Syria broke down, primarily due to differences on how to contain the growing crisis in Lebanon, and Syria continues to face serious political turmoil. The loss of life in the present internal struggle is deplorable. The government is woefully deficient in its handling of the situation, but, like Libya, President Assad will cling to power till the last Syrian is killed. Saudi Arabia’s position in the coming decade will again be based on its principles – peace, cooperation, and progress.
There must be peace in Lebanon and Syria, and this will come through cooperation of the parties involved, but little can be done without progress. This is especially true in the nations that Saudi Arabia sees as its primary regional challenges in the coming decade – Iran, Iraq, Yemen, Lebanon, and Syria. With progress – social and economic – the conditions in which peace can prosper will come.
Egypt holds a special place in Saudi security interests. It is the largest Arab country with close and historically deep and significant ties to the Kingdom. King Abdullah held the closest of relations with President Mubarak for over thirty years. Abandoning him or any close ally during a revolutionary uprising was not and will never be a policy option for the Kingdom, which must uphold and defend its values. However, once President Mubarak resigned and the Egyptian people expressed their will, King Abdullah not only recognized the new reality, but he also extended the hand of friendship to the new leadership. For instance, he unconditionally authorized four billion dollars in grants, loans, and deposits to Egypt’s emerging government, which stands in stark comparison to the conditional loans that the US and Europe have promised. It is also another contrast in values between the Kingdom and its Western allies.
Now to Bahrain: This nation is geographically and historically the closest to Saudi Arabia. Right after the 1979 revolution in Iran, Khomeini began trying to export his revolution to all Muslim countries. This resulted in eruptions of violence not only in Muslim countries but also among Shi’ite communities in other countries. Those who claim that the recent disturbances were not instigated by Iran forget that Khomeini’s creation, Hezbollah in Bahrain, still exists and that Iranian propaganda broadcasts beamed at Bahrain have never ceased. When King Hamad delegated his Crown Prince to negotiate with the protesters on their demands, the Kingdom publicly endorsed the negotiations and still does. The GCC has extended a ten-year economic package to Bahrain of ten billion dollars, mostly from the Kingdom. The deployment of GCC troops at the request of a member country of the GCC to protect its strategic infrastructure like the oil refinery, the airport, the seaport, and economic installations is a duty that the Kingdom was and remains happy to provide. No GCC personnel have been engaged in any action against protesters. King Hamad has continued to call for negotiations and the Kingdom continues to support that call.
Of course, a full analysis of the Kingdom’s situation vis-à-vis the region cannot be considered complete without discussing what is perhaps the most important issue, and that is the Israeli/Palestinian conflict. As we have recently seen, Israel’s unwillingness to cease its unlawful colonization and continual refusal to grant the Palestinians their own homeland is the core reason that this conflict continues. There is no lack of proposals for peace, many of them completely rational and fair. Indeed, the only viable one today, in my humble opinion, remains The Arab Peace Plan, originally outlined by King Abdullah in 2002. It was even recently used as the basis for President Obama’s call on Israel to withdraw to its 1967 borders and the establishment of a viable and contiguous Palestine bordering Israel, Jordan, and Egypt.
The Kingdom continues to urge Israel to take the necessary steps toward peace and justice. It also continues to support the Palestinian Authority in its attempts to build lasting institutions for its people, and it remains, counter to recent accusations, the world’s largest contributor to the Palestinian Authority. In addition to the billions delivered from the 1960’s through the early 2000’s, in 2007 the Kingdom promised $500 million in development aid over five years to fund the Palestinian Authority’s Reform and Development Program. More than $300 million of this funding has been handed out to projects that include the Islamic Development Bank’s Aqsa Fund, which supports Palestinian projects, and housing and assistance for Palestinian refugees. More pledges, ranging into the billions of dollars, have been made to support the Palestinian Authority and the Kingdom has delivered hundreds of millions of dollars in the past few years for rebuilding and developing Palestine — money that is being spent on schools, roads and security. One billion dollars has been earmarked for reconstruction in Gaza after the murderous Israeli attacks in 2008 and 2009. Funding, engagement, and a call for a two-state solution will be the centrepieces of the Saudi position in the coming decade.
And on the all-important issue of statehood, King Abdullah has called upon the world community, as its ethical and religious obligation, to come up with a Marshall-like Plan for the Palestinians whose objective will be the establishment of a Palestinian state. As such Saudi Arabia stands behind those UN member nations who wish to make an official UN declaration recognizing the state of Palestine and believes with them that Palestinian statehood is not a matter of if, but when.
Let me conclude the section on external security with a few words on Saudi Arabia’s perceived role in the Pakistan and Afghanistan situation, as well as in the larger Muslim world. It is our position that Afghanistan must become a stable nation with a unified government; the Taliban must divorce al-Qaida before it can become a partner for peace; and that Pakistan must join in the efforts to make that happen.
Our talks with Pakistan cover a host of issues, from counterterrorism to development aid to the Iranian ambitions in the area. We see our work in that region as part of our overall role in the broader Islamic world, and we view the next decade as a further realization of that. We hope to increase our peaceful foreign aid to nations in the name of improving their humanitarian situations, and also to foster a sense of Islam as a religion of collaboration and progress. But we also need to work harder to make sure this aid has a tangible effect and to make sure that it is spent only for purposes of peace. But it is important to note, as our recent $60 billion arms purchase from the United States indicates, while we spend lavishly on peaceful initiatives, we are also spending to guarantee our security against any contingency.
I would like to now turn to internal security and issues of the general cohesion of Saudi society. As we have seen in the Arab world, mismanagement of a nation can have dire consequences. The Kingdom, by our own admittance, has its issues: unemployment, a large youth population, radicalism, and diversification. But foremost among these is that the Kingdom is an aggregation of invested identities seeking political participation. These include different tribes, Shiites, conservatives, progressives, women, and others. Because of the dominant power of the state due to wealth, centrality and infrastructure, the inclusion of these diverse identities into a unified singular Saudi identity must inevitably be conducted through the state apparatus and narrative. And indeed, the Saudi government is handling the issue of identity inclusion under the belief that in it lay solutions to all its issues.
This has involved instituting the Basic Laws of Governance, the Shura Council, and the National Dialogues, increasing governmental transparency, working to foster the education and work of women and to enfold our Shi’ite brothers by offering them more opportunities and protecting their rights, opening up the media to a broader spectrum of opinions, allowing debate clubs at universities, continuing the long established public “Majlis” discussions with the King and public officials, opening up and reforming the judiciary, and moving toward the election of representative officials, allowing the celebration of Saudi National Day, and establishing the Bay’ah Council to guarantee a smooth process for the succession. All of these measures are both in response to an increased national sentiment and are meant to foster such sentiment.
But we are also taking strong actions to defeat those forces inside our nation who do not wish to be a part of civil society, but only wish to rip it apart. In response, we have implemented, and we will continue to improve over the coming decade, both hard and soft measures designed to eliminate the terrorists from our midst. First and foremost, the Saudi state has adapted a policy of direct confrontation with the forces that violently target our people, our government, and its infrastructure. A short summary of these actions includes coordination between Saudi and other international security agencies, closer monitoring of our financial infrastructure to make sure funds are not abused, a system-wide enhancement and expansion of our internal security forces, cross-agency counter-terrorist cooperation in the areas of intelligence and surveillance, and the detainment and extradition of 1000 suspects and the elimination of terrorists and multiple terror cells. More than sixty thousand slots in the cadre of the security agencies have been approved.
As you can see, Ladies and Gentlemen, it is quite a formidable list, but it is not all, for we have also seen success with, and will continue to engage in, various soft measures that prevent threats against the state from taking root in our soil. This includes an ideological rehabilitation program for those who are arrested for crimes of terrorism in order to wean them away from their extremist views, a greater emphasis on enlightened education that does not preach hate, and an increased involvement of the Senior Council of Ulama to speak out and issue fatwas against terrorism. All these “soft” measures are part of an overall reform strategy adopted by the state since 1993 and have touched all aspects of the political, economic and social orders. We will continue to improve upon them to achieve optimal success.
Let me now briefly touch upon the third area of concern – energy security – as it is such a vital element of the coming Saudi decade, primarily due to Saudi Arabia’s pivotal role in the global energy market. To underline that pivotal role, allow me to point out that Saudi Arabia itself now possesses 75% of the spare production capacity in the world, with every other country possessing a very small amount or practically nothing. To put this into perspective, Saudi Arabia has so much production capacity – nearly 4 million barrels/day – that we could almost instantly replace all of Iran’s oil production. This massive spare capacity is the outcome of a capacity expansion program from 10 million barrels per day to 12.5 million barrels per day, which the Kingdom undertook between 2002 and 2008 at a capital cost of over $45 billion. Current plans are in place to sustain this capacity further by a new field development at Manifa, which will bring on a further 900 thousand barrels of oil capacity per day by 2014 at a capital cost of $16 billion to offset decline at other fields.
In addition to this spare production capacity, Saudi Arabia is committed to insuring sufficient refining capacity on a global basis to guarantee its oil production reaches the end use markets across the world. Current plans are to increase its Saudi based refining capacity from 2 million barrels per day to 3 million barrels per day by 2014 at a capital cost of over $26 billion dollars. At the same time, Saudi Arabia, through its joint venture partnerships in the US, Korea, China and Japan, operates a total offshore refining capacity of a further 2 million barrels per day, and has plans to expand this with additional refineries in Indonesia, China and Vietnam.
The stabilizing role of this spare oil production and new refining capacity, which now carries a direct operating and maintenance cost of no less than $5 billion per year with no offsetting revenues, must not to be misjudged, nor can one exaggerate the vital role it would play should it be needed.
That said, Saudi Arabia, as it always has, will commit itself in the coming decade to full energy market stability. A stable, coordinated price brought about by stable, coordinated production and pricing policies is the only way to assure this stability, and, as we have seen again and again, a situation that is ideal for both producer and consumer alike. Such stability and coordination are at the heart of Saudi, and global, energy security now and for the future. And on the topic of coordination, it is the Saudi position that calls for energy independence are misleading and disingenuous. The optimum formula for energy security for all nations is cooperation among nations to achieve a mix of all energy sources. For this reason, the Kingdom is working on adding solar, wind, and nuclear energies to offset its own use of oil and gas because we know that the more oil we consume, the less there will be for exports, creating a shortage at the very time when worldwide oil consumption is growing.
In order to foster international energy cooperation and coordination, the Kingdom has also established the International Energy Forum and the Joint Oil Data Initiative Archive of current individual country statistics in Riyadh. The goal of these initiatives is to overcome the adversarial confrontation between producers and consumers, which has existed since the oil boycott in the early seventies. Producers, consumers, and the oil companies make up the forum, and, already, a better sharing of more exact and beneficial information on reserves, production capacities, and consumption projections is available to all through the fully transparent Joint Oil Data Initiative Archives.
Ladies and gentlemen,
I began my speech with the issue of openness, and it is with openness I wish to end it, for, if you will allow me a slight stretch of my poetic faculties, I would say that openness is indeed at the heart of many of the issues addressed in this speech – the very issues that Saudi Arabia sees as being its national security challenges in the coming decade. For is it not openness that Iran fears, lest its true nuclear ambitions be discovered? Is it not a brave form of openness that the government of Iraq needs in order to assure that it is accepted by its people and surrounding nations? Is it not an open Yemen that the terrorist enclaves fear lest they be found out? Is it not the threat of their own openness before the law that so rattles Hezbollah in Lebanon? Is not Israel avoiding the openness of its role in preventing peace with the Palestinians by somehow claiming that it has a right to new settlements? And yes, it is even openness that Saudi Arabia needs to embrace as it modernizes and diversifies and takes on a greater role in global politics and Islam.
And so, as paradoxical as it may seem, I stand before you and say that the Saudi national security doctrine for the next decade, while certainly adaptable to reality and based on rational assessments and objectives, should be based on the notion that what the world needs now is more bare skin. For if we can all stand before each other and have nothing to hide, then we can all sit down together and have nothing to fear.
HRH Prince Turki Al Faisal Al Saud
Prince Turki is Chairman of the King Faisal Center for Research and Islamic Studies and is one of the founders of the King Faisal Foundation. He served as the Ambassador of the Kingdom of Saudi Arabia to the United States of America from September 13, 2005 until February 2, 2007. He also serves as a member of the Boards of Trustees of the International Crisis Group and the Oxford Center for Islamic Studies and is co-chair of the C100 Group, which has been affiliated with the World Economic Forum since 2003. Prince Turki was appointed an Advisor in the Royal Court in 1973. From 1977 to 2001, he served as Director General of the General Intelligence Directorate (GID), the Kingdom’s main foreign intelligence service. In 2002, he was appointed Ambassador to the United Kingdom and Republic of Ireland by then Custodian of the Two Holy Mosques King Fahd bin Abdulaziz.
Born on February 15, 1945 in Makkah, Saudi Arabia, Prince Turki began his schooling at the Taif Model Elementary and Intermediate School. In 1963, he graduated from the Lawrenceville School in Lawrenceville, New Jersey and subsequently pursued undergraduate studies at Georgetown University in Washington, D.C.
The King Faisal International Prizes, awarded by the King Faisal Foundation, are presented to “dedicated men and women whose contributions make a positive difference.” These annual prizes, which are awarded in five fields of endeavor – Service to Islam, Islamic Studies, Arabic Language and Literature, Science, and Medicine – have been likened, for the Arab and Islamic worlds, as similar in stature to, and nearly as coveted as, the more renowned and longer established annual Nobel Prizes. The King Faisal International Prizes, in addition to being bestowed upon Arabs and Muslims, have been granted to outstanding achievers from virtually all corners of the world.
An analyst says recent oil policies of Saudi Arabia may be aimed at pressuring Iran and Russia.
“A beleaguered House of Saud believes it may force Moscow to abandon its support of Damascus, and Washington to scotch a deal with Tehran.”
— Journalist Pepe Escobar
The recent downward trend in oil prices due to increased production by Saudi Arabia has led to speculation that perhaps Washington and Riyadh are using crude oil price as a weapon to put pressure on Russia and Iran.
While sustained low oil prices will impact the Iranian and Russian economies, the repercussions in the United States may be even greater. So is Saudi Arabia merely seeking to increase market share or are there other issues lurking in the background?
The world anxiously awaits the next scheduled OPEC meeting on November 27, which just happens to fall three days after the latest deadline for a US-Iran nuclear agreement to see if Saudi Arabia will keep markets flooded with crude oil or reduce output to raise prices.
If Riyadh continues its oil surge, China and India, the second and third largest oil importers worldwide, stand to benefit significantly, as would Thailand, Indonesia, Singapore and the Philippines. Conversely, OPEC members Iran, Iraq, Algeria, Libya, Nigeria, Ecuador and Venezuela, all with break-even points around $120 a barrel, will be adversely affected.
As the world learned in 1986 when oil prices plunged over 50 percent, if Saudi Arabia wants to start a price war to affirm its ascendency, it has both the resources and infrastructure to do just that.
The 1986 oil price freefall engineered by the Saudis was simply to increase their share of the market, but this time, Riyadh’s price war could make fracking and deepwater drilling as well as alternative energy sources such as solar and wind power economically unfeasible in America. But does Riyadh really intend to strike a blow at the US economy?
Saudi Arabia has the fiscal reserves to tolerate oil prices as low as $70 a barrel for two years without undue hardship. With reserves of almost $750 billion—double the amount held five years ago—Riyadh is clearly in a position to test the resolve of the world’s largest importer of oil, the United States, in maintaining its shale oil production at the current levels despite prices well below the $100 a barrel profit benchmark.
And if the Saudis hold oil prices below $90 a barrel, shale oil extraction in the US will be rendered unprofitable, which would lead to production cutbacks and greater reliance on imported oil.
It is no secret that Washington and Riyadh have been at odds over a number of issues recently, among them the Saudi perception of a lack of political will in the US administration to topple the Assad government, exasperation due to the US refusal to either strike Iran directly or back an Israeli assault, and utter dismay over President Barack Obama administration’s efforts to reach an agreement on Iran’s peaceful nuclear program.
Indeed, the Saudis may claim to be supporting the US-led campaign against ISIL, but the falling oil prices suggest otherwise.
An obvious strategic benefit accruing to both the US and Saudi Arabia from low oil prices is the additional economic burden placed upon their mutual adversaries, Russia and Iran.
Russia sells most of its daily output of 10 million barrels of oil on the domestic market and needs a price of $100 per barrel to maintain a stable economy. Iran produces 4.2 million barrels per day, and needs the price of oil to be around $130 a barrel to balance its budget. However, there is a sharp negative side to the oil price slide for the US, since every $20 drop per barrel roughly translates to a 20 percent reduction in profits for American producers.
While the US has become the world’s largest oil producer with an output of 11 million barrels a day surpassing even Saudi Arabia, it remains the world’s largest oil importer, so its production, like Russia’s, mainly supplies the domestic market. And despite years of rhetoric from successive Washington administrations about achieving energy independence, America’s domestic energy output has failed to supply all the country’s needs since the late 1950s.
Consequently, with US output 15 percent short of satisfying the gluttonous appetite of the world’s largest energy consumer, the current Saudi oil war has the potential to damage the US economy by making shale oil extraction unprofitable.
The US gained the lead in world oil and gas production using costly methods of extracting oil and gas from rock strata by hydraulic fracturing, also known as “fracking,” which is profitable as long as oil prices remain above $100 a barrel, but below this price level, fracking becomes marginal at best.
While some US energy firms could break even at oil prices of $80 a barrel, others are unprofitable below $90, but if weak oil prices continue, “There could be an immense amount of pain,” according to energy economist Phil Verleger. In short, what Harvard economist Joseph Nye has called America’s “shale gale” may turn out to be just a whirlwind in the Arabian Desert.
Unlike 1986, the US economy is in no shape to weather a protracted global downturn. At that time, with the prime rate hovering around 9 percent, the focus of the Federal Reserve was on curbing inflationary pressures, but today, the Fed is far more worried about deflation than inflation. Despite an “official” prime rate of 3.25 percent since December 2008 and a Federal funds rate at 0 to 0.25 percent, the Fed has failed to attain its goal of a 2 percent inflation rate.
Since November 2008 with the intent to keep interest rates low and thereby stimulate the economy, the Fed has purchased $85 billion of US Treasury securities each month, only decreasing that amount by increments of $10 billion at each Federal Open Market Committee meeting since January 2014. But after three rounds of so-called quantitative easing that bloated its balance sheet to nearly $4.5 trillion, the Fed has officially given up on the program, due no doubt to the inflationary effect of falling crude oil prices.
US corporations have even bought back $1.09 trillion of their own stock to maintain the level of the Standard and Poor’s 500 stock index. But despite these massive efforts to jump start the US economy, the labor force has a participation rate of only about 63 percent, meaning that the real US unemployment rate remains around 37 percent, refuting the Fed’s latest claim of “solid job gains and a lower unemployment rate.”
With the top 10 percent in the US amassing over 50 percent of the income, the anemic American economy threatens the world with a deflationary spiral on the order of the Great Depression in the 1930s, which would drag down the rich along with everyone else.
And until the Saudis torpedoed the markets, crude oil price has been a key factor that has allowed both the Fed and the US Congress to avoid addressing deflation.
So it may be that the Saudis have deployed their “oil weapon” in a magnanimous move to aid the international banking cartel in their losing battle against global deflation. However, this seems improbable considering the ongoing Washington-Riyadh tensions.
More likely, Riyadh launched its “oil weapon” simply to pressure the United States to back away from a nuclear deal with Tehran, and force Russia to give up its support of Damascus. Certainly, as was the case in 1986, there is an aspect of increasing market share in this, but that the Saudis also hoped to save the world from mass economic destruction seems highly doubtful.
Yuram Abdullah Weiler is a freelance writer and political critic who has written dozens of articles on the Middle East and US policy. A former engineer with a background in mathematics and a convert to Islam, he currently writes perspectives on Islam, social justice, economics and politics from the viewpoint of an American convert to Shia Islam, focusing on the deleterious role played by the US in the Middle East and elsewhere. A dissenting voice from the “Belly of the Beast”, he lives with his wife in Denver, Colorado. More articles by Yuram Abdullah Weiler
The Seattle Times homepage. Photograph: Screengrab/Seattle Times
A Seattle Times editor says the newspaper is “outraged” by the revelation that the Federal Bureau of Investigation had apparently created a fake Seattle Times news story as part of an investigation.
According to a document obtained by the Electronic Frontier Foundation (EFF), the FBI’s Seattle office fabricated a news story and a fake Seattle Times page to gain access to the computer of a suspect in a series of bomb threats made to a regional high school in 2007.
The Seattle Times said it had just learned of the incident after the American Civil Liberties Union’s principal technologist Christopher Sogohian tweeted about the program on Monday.
“We are outraged that the FBI, with the apparent assistance of the US attorney’s office, misappropriated the name of the Seattle Times to secretly install spyware on the computer of a crime suspect,” said Seattle Times editor Kathy Best. “Not only does that cross a line, it erases it.”
“Our reputation and our ability to do our job as a government watchdog are based on trust. Nothing is more fundamental to that trust than our independence – from law enforcement, from government, from corporations and from all other special interests,” Best said. “The FBI’s actions, taken without our knowledge, traded on our reputation and put it at peril.”
A story about the bomb threats and a link to the page was sent to the suspect’s MySpace account, complete with information on how to subscribe to or run advertising in the Seattle Times, suggesting it was from an official source. Once the suspect clicked on the link, FBI agents could access the suspect’s location and internet protocol information
The software attached to the sham link is known as CIPAV (Computer and Internet Protocol Address Verifier). The EFF posted 172 pages on how the program was used in Seattle and a case in Florida.
A 15-year-old suspect was arrested and convicted for making the threats. The special agent in charge of the FBI’s Seattle office, Frank Montoya Jr, defended the tactic in a statement.
“We identified a specific subject of an investigation and used a technique that we deemed would be effective in preventing a possible act of violence in a school setting. Use of that type of technique happens in very rare circumstances and only when there is sufficient reason to believe it could be successful in resolving a threat. We were fortunate that information provided by the public gave us the opportunity to step in to a potentially dangerous situation before it was too late.”
The mock Seattle Times story was attributed to the Associated Press, which condemned the FBI’s actions. “We are extremely concerned and find it unacceptable that the FBI misappropriated the name of the Associated Press and published a false story attributed to AP,” said the AP’s director of media relations, Paul Colford. “This ploy violated AP’s name and undermined AP’s credibility.”