Saudi Arabia and Russia cooperated for years to maintain the value of their chief export—oil. This month, that collusion collapsed into a price war with both countries unexpectedly boosting production. In the midst of the coronavirus pandemic and China’s decreasing oil demands, fears of an uncertain future are shaking the fossil fuel economy.
Between the summer of 2008 and the beginning of 2009, oil prices plummeted from a high of $147 per barrel to a low of $33. This extraordinary reversal of fortune announced the end of the second oil boom for the countries of the Gulf Cooperation Council (GCC) — Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates — precipitated, of course, by the broader global financial crisis. How these oil-exporting countries will weather this dual economic challenge is a live question. From the time that the Gulf economies took off in 2003, there were growing worries that their rapid rise was a massive investment bubble built on high oil prices and cheap credit.
The contemporary international political economy of oil presents a puzzle: political instability in regions where oil is found coexists with steadily falling prices. This combination of continuing political conflict and uncertainty in the Middle East (particularly the Gulf), and the continuing slide in the real price of crude oil encourages consideration of relations between world oil markets, Middle East politics and the international role of the United States. To comprehend these relations, one must consider both the political and geopolitical objectives of the states involved and the economic motivations of the key actors in the international oil industry.
It is still possible, even likely, that history will take note of the remarkable events of late 1973 and early 1974: Egyptian troops crossed the Suez Canal and penetrated the supposedly impregnable Bar Lev line in a matter of hours; the kings and presidents of the Arab oil producing states, led by Faysal of Saudi Arabia, decreed a boycott of the world’s most powerful state; the major Third World oil producers, grouped in the Organization of Petroleum Exporting Countries (OPEC), doubled the price of crude oil in a single afternoon and, a few weeks later, doubled it again. The grievances and frustrations of many generations, it seemed, had finally overturned the old and accustomed hierarchies in cumulative bursts of political energy.