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06 July 2015

Saudi Arabia as the US dominance instrument

Saudi Arabia as the US dominance instrument

Nonrenewable resources such as oil and gas play a significant part in the world economy. Social researchers pay special attention to the oil industry and the impact it has on political development.

By will of God it turned out that most of the oil springs are located in the places where Muslims live. Muslims dominate in eight out of ten countries with the biggest oil reserves. These countries are Saudi Arabia, UAE, Kuwait, Iraq, Iran, Libya, Kazakhstan and Nigeria. Due to this, Islam has become a crucial factor in the global economy and politics. The US superpower realises how important it is to globally control the oil industry. So, it managed to create an efficient instrument to help American oil companies to flourish and the US government to influence the countries with an independent political line. Saudi Arabia plays a part of this instrument.

American British political scientist and the Middle East expert Timothy Mitchell believes that Saudi Arabia is a key factor which contributes to the US supremacy. In Timothy Mitchell’s opinion, this is due to some characteristics of the oil political economy.

To begin with, oil as the primary energy source of an industrial economy, can potentially produce a huge profit. However, this is only on condition of the oil deficit. If there is a lot of competition on the market, it is hardly possible to earn super-profits. Timothy Mitchell notes that there was no oil deficit during the 20th century. Contrary to popular belief, oil has been in excess supply. Hence, the artificial oil deficit should have been made. It would have restricted a competitive mechanism and at the same time, it would have generated a substantial profit to the owners of the oil industry.

Saudi Arabia as the US dominance instrument

By means of House of Saud ruling regime in Saudi Arabia, the USA has managed to create the so called deficit system which works in the US favour. To be more precise, at the beginning of the 19th century, the US aimed at creating a monopoly in petroleum refinery and all the required infrastructure. John Rockefeller managed to successfully build up the first integrated monopoly called Standard Oil. Later, in the 20th century, the American oil companies stepped out of their own country and focused on dividing the world supplies and intentional reduction of oil production. A good trade for all the key oil producers was made with the Soviet Union. According to the agreement, the oil production was restricted, relatively high prices were maintained and the distribution area was divided too.

These agreements led to the disappearance of a market competition. Moreover, low prices on the Middle East oil (oil from Saudi Arabia in particular) resulted in super-profits mentioned above. The part of Saudi Arabia with regard to this is crucial. This Middle East Kingdom creates and supports the deficit system. Having a low domestic demand, House of Saud afforded to decide whether to turn on or turn off the productive capacity without any fear or doubt. It is worth pointing out that despite the fact that that it does not have an urgent oil demand and it restricted its production, it still managed to make the top three among the oil producing countries like Russia (USSR) and the US. According to Timothy Mitchell who refers to the independent subdivision of the US Ministry of Energy “Energy Information Administration”, the industrial capacity of Saudi Arabia in 1990s exceeded or was equal to the overall production of any other oil producing country, except for Russia or the US. Such a surplus production was essential for Saudi Arabia playing a part of the so called “swing producer”. It threatens to turn on or turn off the productive capacity. This has a certain impact on the behaviour of other market players which aim at exceeding their production restrictions. This is the way the deficit system works. Saudi Arabia and the US are the key stakeholders of this game. American oil companies such as Chevron (previously called “StandardOil”) and Exxon Mobil were the originators of the deficit system. The political power of the US provided Saudi Arabia with the military support. Controlling Saudi Arabia, the US maintains its dominance not only in the oil industry, but in the global politics too.

Aidar Zinatullin