Tag: saudi arabia

Falling Oil Prices Put Producers Between a Rock and a Hard Place

Over the last few months, the price of Brent crude oil lost over 20% of its value, dropping below $90 just yesterday and hitting its lowest level in over two years. In consequence, oil producers will no longer be able to rely on oil revenues to pay their bills. The fiscal break-even price – a metric that determines the price per barrel of oil required for a nation to balance its budget at current levels of production – puts the problem into perspective.

Using data from Bloomberg and Deutsche Bank, I prepared a chart showing the break-even prices for the world’s major oil producers and the price on Brent crude. Over the past six months, Brent crude fell far below the break-even price for eleven of the top oil producers in the world; Iran, Venezuela, Nigeria, and even Saudi Arabia can no longer finance their governments’ largess through oil revenues.

The combination of oil markets flying into a perfect storm and excessive government spending puts most of the world’s oil producers between a rock and a hard place, where they will stay for some time.

Remembrances of Prof. M.A. Adelman

As Peter noted, M.A. “Morry” Adelman—a great economist, mentor, and friend—passed away last month at the age of 96. The first paragraph of The New York Times obituary (June 8, 2014) had this to say of Professor Adelman’s passing.

Morris A. Adelman, an energy economist who marshaled free-market principles and hard data in arguing that the world’s oil supply was not running out, died May 8 at his home in Newton, Mass. He was 96. The Massachusetts Institute of Technology, where he taught and researched for 65 years, announced the death on May 15.

I first had the pleasure of meeting Morry in June of 1967, shortly after I had joined the faculty at the Colorado School of Mines. The Rocky Mountain Petroleum Economics Institute had convened a meeting at Mines; Morry was one of the speakers on a star-studded program. I had been invited to edit a book, Essays in Petroleum Economics, of the conference papers.

As a rookie facing what was, at the time, an array of the most notable petroleum economists in the world (Adelman, Richard Gonzalez, Minor Jameson, John Lichtblau, Milton Lipton, Wallace Lovejoy, Stephen McDonald, James McKie, and Frank Young), I was, to put it mildly, anxious. But, thanks to the likes of Adelman, that problem was quickly put to rest.

Morry knew how to mentor young rookies. He also knew more about the oil industry–even the institutional details–than most of the conference representatives from the industry. He was not only a master of applied economics and detailed, sharp pencil work, but was an economist with a personality–a very sharp wit, very sharp indeed. This wit and his personality come through loud and clear in his writings. So, Morry remains with us, fortunately.

As I reread “Trends in Cost of Finding and Developing Oil and Gas in the U.S.”, which was Adelman’s chapter in Essays in Petroleum Economics, I am struck by just how careful he was to protect his text–a master of rhetoric, too. He paid the most careful and anxious attention to stressing that he was not making predictions, but only presenting short-term projections. As for intermediate projections, beyond 1980, Adelman thought (in 1967) they “only were of minor interest.” And “projections past the year 2000 are funny because it is better to laugh than to weep in the vain presumption of thinking we can see that far ahead.”

That said, Adelman’s chapter does suggest that he had what turned out to be very clear ideas about the possible long-run scenarios:

Nobody can tell what will happen either to energy demand or supply. All we need mention are a decisive breakthrough on: shale oil extraction, or direct finding of conventional crude oil, or coal conversion to liquids, or nuclear power, particularly the fast breeder reactor, or the fuel cell and other methods of energy conversion, not to mention the electric automobile. A major change in any one of these would put altogether new perspectives on developments in oil supply and cost.

Washington Post Defines Worst Fears Down

“Al-Qaeda bombmaker represents CIA’s worst fears.”

That’s the headline of a Washington Post story on Yemeni terrorists’ attempt to down a U.S. bound flight by placing a bomb on the body of an operative that turned out to be a CIA and Saudi agent. By straining to alarm readers about the bomb-maker, Ibrahim Hassan al-Asiri, the story makes three errors.

First, by defining the CIA’s “worst fears” as “a highly skilled terrorist determined to attack the United States,” the Post underestimates the imaginative capacity of intelligence officials and overrates Asiri’s prowess. The article uncritically quotes House Homeland Security Committee chairman Peter King’s claim that “Asiri is an evil genius. He is constantly expanding, he is constantly adjusting.” Whatever King means by “expanding,” “failing” would have been a better choice of words. In just one of the four Asiri plots mentioned in article did his bomb detonate properly. That one killed only its bearer, al-Asiri’s brother. The nearby target, Saudi’s Prince Nayef, suffered only minor wounds.

Second, the article dubiously claims that two of those plots nearly wreaked great damage:

If it were not for a technical problem (Abdulmutallab’s device failed to detonate) or solid intelligence tips (Saudi counterterrorism officials alerted authorities in Dubai and Britain to intercept the cargo planes), Asiri would have succeeded in staging a catastrophic disaster in American skies.

It is, however, questionable whether Abdulmutallab’s bomb, had it properly detonated, was powerful enough to cause his plane to crash. Even if it opened a hole, the plane might not have crashed.

In the second case, where bombs were hidden in printer cartridges on cargo planes, authorities tell us the detonators probably would have worked and could have downed the planes. But there remains a decent chance that detonation would have occurred while the planes were on the ground. Also, one reason that the devices made it on to cargo planes without detection is that they contain few people and thus justify less security. The death of a crew would have been tragic, of course, but “catastrophic disaster” is a stretch.

The likely success of terrorist plots can’t be assessed simply by looking at the stage of the plot that caused its failure. As Jim Harper argues, plots require success in a series of tasks, each of which drives down the odds of overall success. Bombs that are both difficult to detect and easy to detonate are tough to make, and competent bombers are hard to find. Borders have guards. Intelligence services employ double agents.

The article’s third error is its assertion that the Yemeni branch of al Qaeda has “taken advantage of Yemen’s political turmoil and seized large swaths of territory in the south.” That language conflates the terrorist group with a broader insurgency, confuses their goals, and overstates the group’s potency. The misperception invites a broad U.S. campaign against Yemen’s southern Islamists, which could heighten their enthusiasm for attacking Americans, creating the menace we feared.

Let’s review the record of the bombmaker who is labeled our “worst fear.” His organization has made no discernible progress towards its murky political objectives—though its Islamist protectors have gained territory amid a power vacuum. He has never produced mass violence nor apparently come close, and his most successful act of terrorism was to help his brother blow himself up. His next best effort resulted in a severe crotch burn for the bomber, who survived, talked to U.S. authorities for months, and is serving a life sentence.

That is “success” only under an exceedingly capacious definition. Bin Laden and his acolytes are being grandiose when they talk about bankrupting us. But their boasts show that “terrorism” remains a good label for their misbegotten efforts. They sustain their endeavors by imagining that violence, by generating fear and cost, will cause their enemy to fold and to accommodate their goals. By hyping their menace, we help them cling to that fantasy.

Cross-posted from the Skeptics at the National Interest.

Don’t Arm Syria’s Rebels

With the death toll in Syria now climbing above 5,000, and graphic videos and images of the bloodbath flooding the internet, some in Washington have called for arming the Syrian resistance. That option, compared to other alternatives like a NATO-led no-fly zone, seems antiseptic. But America’s arming of rebels will amount to contributing to a worsening situation without a means of reaching a peaceful end state. Restraint, however unpalatable, is the most prudent option in an increasingly intractable situation.

First, there is no clear group in the resistance for Washington to provide arms to, even if that was the policy option chosen. Republican Senator John McCain of Arizona, who has argued most forcefully for arming the rebels, said, “It is time we gave them the wherewithal to fight back and stop the slaughter.” But Sen. McCain stopped short of calling for the direct supply of weapons by the United States, and didn’t mention to whom among the resistance he’d like to lend a helping hand.

No single group or leader speaks on behalf of Syria’s resistance, especially in a country where political loyalty tends to hew to one’s ethnicity, religion, sect, or clan. The Damascus-based National Coordination Committee (NCC), considered weak by some Syrian activists, is still willing to engage the regime in a power-sharing unity government.

The exile-based Syrian National Council (SNC) rejects all contact with the regime of President Bashar al-Assad. SNC seeks recognition from the West, but is viewed by some as a vehicle for monopolizing the uprising. The Free Syrian Army, a disorganized mash-up of disparate rebel groups and government soldiers who have switched sides, has declared its allegiance to the SNC.

The Syrian Muslim Brotherhood has said it’s open to foreign intervention, at first emphasizing Muslim Turkey. Meanwhile, a large portion of Syrian Kurds see Turkey as a primary threat. These rifts persist amid reports of Sunni jihadists entering Syria from Iraq, and fears that al Qaeda may hijack what for many is a struggle for a democratic Syria.

Furthermore, as George Washington University Professor Marc Lynch and others have argued, “boosting rebel fighting capacity” is likely to crystallize Syria’s internal polarization, and do little to weaken the Assad regime politically.

Flooding Syria with weapons, in a conflict the United Nations high commissioner for human rights has described as on the brink of civil war, might be used to justify a heavier government crackdown. U.S. assistance to rebels would vindicate Assad’s narrative that the revolt is a conspiracy of outside forces, including the U.S., Israel, and the Gulf states. It could also stir Sunni elites in Damascus and the relatively quiescent Aleppo to rally around Assad, strengthening his support, rather than weakening it.

Lastly, the civil war won’t end after arming one side. The most infamous instance of backlash was from the U.S. arming rebels in Afghanistan in the 1980s, a country that later turned into an al Qaeda sanctuary.

Today in Syria, the foreign frenzy of weapons pouring in has already resulted in a hot mess. Iranian and Russian arms, along with political support from Lebanon and Iraq, are going to the regime in Damascus and the large portion of minority Shia Alawites who support it. Arms and support from Qatar and Saudi Arabia back the majority Sunnis and other anti-Shia Islamist factions. Whatever this regional and international sectarian proxy war morphs into Washington would do best to stay out of it.

Syria’s deepening slide into civil war looks likely, which can be prevented only by either marshaling international opposition to the Assad regime, something Washington has already attempted to do, or encouraging more defections from within the regime, with the promise of resettlement and amnesty. The current diplomatic policy of waiting for the resistance to congeal and pledge to guard minority rights is prudent and should be pursued.

Sending weapons to rebels might satisfy the outside world’s moral urge to do something immediately, but it also might add to the mayhem, increase the loss of life, and push Syria further away from a stable future. Restraint is the more difficult choice, but the one that serves both the American and the Syrian people better in the long run.

Cross-posted from the Skeptics at the National Interest.

Of Qaddafi and Kim Kardashian

Last week on The Tonight Show with Jay Leno, President Obama discussed the withdrawal of U.S. troops from Iraq, the 2012 Republican presidential field, and ubiquitous Hollywood socialite, Kim Kardashian. But the conversation got really interesting when it veered to the recent intervention in Libya.

Obama said that with the arrival of the Arab Spring, the late Libyan leader Moammar Qaddafi had an opportunity “to finally loosen his grip on power and peacefully transition to democracy. We gave him ample opportunity and he wouldn’t do it.” On the former leader’s killing, Obama said, “There’s a reason after [Osama] bin Laden was killed, for example, we didn’t release the photograph. I think that there’s a certain decorum with which you treat the dead even if it’s somebody who’s done terrible things.”

Hmmm, decorum. To some in the Beltway it may seem tired and trite to hear that U.S. foreign policy is flagrantly hypocritical when it comes to the subject of human rights. But it’s nonetheless noteworthy to hear prominent American leaders openly advocate intervening abroad in places like Libya in advance of the universal human aspiration to be free while continuing to support Middle East client states that repress their own people. Sadly, President Obama and other American leaders, especially in the wake of the momentous Arab Spring, are often perceived as liberty’s worst emissaries.

For numerous strategic and historical reasons, no American government has intervened militarily in countries such as Algeria, Jordan, or Yemen in defense of human rights. In Saudi Arabia, a long-time U.S. partner, homosexuals, apostates, and drug smugglers can be sentenced to execution, sometimes by beheading. In extreme cases, the convict’s body is crucified in public. And yet, the same U.S. government that offers unflinching support to the Saudi Kingdom led from behind for an intervention in Libya to stop an alleged massacre in Benghazi. In neighboring Egypt, meanwhile, for 29 years the U.S. government showered former President Hosni Mubarak with praise, despite his widespread use of torture and systematic repression of political prisoners. Washington also continues to support and arm the regime in Bahrain, which deliberately kills unarmed protesters and oppresses its people.

To promote human rights in Libya while supporting some of the world’s most heinous tyrannies may reflect America’s geopolitical preferences, but it makes a mockery of human rights and reveals an enormous discrepancy between what America claims to be doing and what it actually does. As much as Obama and his defenders want to strut around and promote their triumph over Moammar Qaddafi, people in the Middle East and around the world are well aware of this discrepancy. Such policies are not only abhorrent but also detrimental to America’s long-term interests. Advancing liberty is a painful and arduous process, but it can be done, and often independent of U.S. government efforts.

Cross-Posted from the Skeptics at the National Interest.

Cillizza on Cain and Know-Nothing Foreign Policy

Asked on Meet the Press this weekend whether the alleged Iranian plot to assassinate the Saudi ambassador was an act of war, Herman Cain gave the following response:

After I looked at all of the information provided by the intelligence community, the military, then I could make that decision.  I can’t make that decision because I’m not privy to all of that information… I’m not going to say it was an act of war based upon news reports, with all due respect.  I would hope that the president and all of his advisers are considering all of the factors in determining just how much, how much the Iranians participated in this.

That struck me as a refreshingly reasonable position. Yet the Washington Post’s election handicapper, Chris Cillizza, decided to make that quote the centerpiece of an article on Cain’s “know-nothing foreign policy.” He then presents a poll showing that Republicans don’t care much about foreign policy this year, only to conclude that foreign-policy ignorance could be a fatal handicap for Cain. His evidence for that conclusion is a quote from Max Boot of the Council on Foreign Relations, who specializes in arguing for wars and imperialism. Boot, as it happens, just wrote a blog post for Commentary titled, “Iran Plot Goes Straight to the Top,” where he attacks those willing to question the evidence against Iran’s leaders and vaguely supports attacking them.

Cillizza’s article makes clear that foreign-policy ignorance is far preferable to the Washington Post’s idea of expertise. The worst part is that Cain, who claims not to know what neoconservatives are, seems likely to become one, call Boot for advice, and win the Post’s respect.

Tehran v. Riyadh

The alleged Iranian plot to kill the Saudi ambassador, Adel al-Jubeir, has served to underscore that Washington and Riyadh view Tehran as a common enemy. This plot has already heightened both parties’ persisting anxieties over Iran, but the U.S.-Saudi partnership has often tended to reinforce, rather than diminish, each side’s most hawkish tendencies.

After the U.S.-led invasion and occupation of Iraq, Iran developed far greater influence among its allies and co-religionists in Syria, Lebanon, the Palestinian territories, and the Gulf States. Demonstrating the fear that Iran’s expanded Shia influence has inspired among Saudi leaders, in February 2007 Foreign Minister Prince Saud Al-Faisal encouraged the United States to strengthen its naval presence in the Persian Gulf, telling a U.S. diplomat that the Saudis would supply the logic for America’s deployment if Washington supplied the pressure.

Of course it is the Kingdom that is alarmed by the possibility of an Iranian SCUD missile attack on Saudi oil facilities; it is the Kingdom that is petrified by the possibility of Iran’s nuclear program posing a threat to the House of Saud’s regional prestige; and it is the Kingdom that has claimed that Shia-Persian Iran has been stage-managing the massive, popular uprisings sweeping the region in order to undermine Sunni Arab regimes. If the United States moves to increase the scope of its political, economic, and military sticks against Iran, it will only serve to invite further Iranian and Saudi intrigues. It may also encourage Iran and other states like it to seek a nuclear deterrent. Responding swiftly to this alleged plot, as some political pundits have encouraged, will further entangle the United States in an intra-Islamic, Shia-Sunni, Arab-Persian rivalry divorced from America’s vital interests.

As an aside, to shed some new light on the scorn currently being heaped on Iran’s odious regime, let us remember that it is America’s strategic ally—the Kingdom of Saudi Arabia—that remains one of the most oppressive regimes in the Middle East. And as much as folks are fulminating over Tehran’s support for terrorism, in reality it is donors in Saudi Arabia who constitute the most significant source of funding to terrorist groups worldwide.

Cross-posed from the National Interest.