The oil balance is back on precarious footing. The shift
of events in Yemen -- President Ali Abdullah Saleh seems to be spending his
final hours or days in office (see defectors above) -- returns instability to
Saudi Arabia's doorstep, and with it may push oil prices higher.
It's not that Yemen itself produces much oil or natural
gas - its production volumes are modest. But its northern border with Saudi is
porous, and as we've discussed
previously, any flow of Yemeni refugees, including armed ones, could destabilize
Saudi Arabia. To the east of the kingdom, Saudi forces are helping to tamp down
unrest in neighboring Bahrain, but
meanwhile face new
protests from sympathetic fellow Shias in the city of Qatif, in Saudi's oil-rich
Eastern Province. All of this will tempt the trigger fingers of intrepid
traders in London and New York.
Oil prices have been relatively
calm considering the upheavals in Tunisia, Egypt, Libya, Bahrain and Yemen,
not to mention the nuclear crisis in Japan, moving up and down just a few
dollars when traders decide they'd like to earn a little money. When prices
have moved the most, it has been with an eye on Saudi Arabia, whose massive oil
reserves and production underpin global price stability.
With his own eye on the same matter of potential unrest
at home, Saudi King Abdullah has added
another $93 billion to the previous $36 billion in largesse he laid on his
people in order to keep them off the streets. My colleague Jim Traub thinks
this is all for nought -- that such regimes are inherently unstable and that,
in terms of U.S. policy, it's always a mistake to back them because, for one
thing, it puts Americans on the wrong side of history. What Jim omits is that,
even if he is right, the self-correction that he is suggesting predictably
happens -- if history is any teacher -- would almost always come after many,
many decades. Does he suggest the United States having antagonistic
relations for the time being and waiting patiently for that day of reckoning before
attending to U.S. commercial and other interests? Of course Washington can't.
Which is what argues for the current course of dealing with who is in power, making
it clear in subtle and explicit ways where Washington stands, and -- short of
sending in the cavalry itself -- embracing a population's empowerment when and
if it comes.
Back to oil. What is preoccupying oil minds today as
prices meander up? Expropriation. Over the weekend, Libyan Col. Moammar Qaddafi
suggested
that the oil companies headquartered in countries currently bombing him
would suffer dispossession of their fields (what he precisely said was that "oil
will not be left to the United States, France and Britain."). A day or so
earlier, Qaddafi had
suggested that he might turn the oilfields over to Chinese and Indian
companies. (Presumably he might have added Russia to the list after Prime
Minister Vladimir Putin denounced the western campaign as tantamount to the
crusades, but then President Dmitry Medvedev muddied the waters
by calling Putin's remarks "unacceptable.")
Expropriation would be a big deal for some countries and
companies, such as Italy's Eni, the biggest foreign hand in Libyan oil; and
Britain's BP, which is exploring for oil there and wishes to be like Eni.
If expropriation does take place, look for combat in the
courtroom. If either the Libyans or any favored foreign suitor wishes to make
good with a cash offer, that might be insufficient, since whatever was paid
might not include the potential profit upside and security that accompany
possession of actual reserves. In short, Eni and BP both would prefer to have
the fields themselves. "The western companies won't give up their concessions
without a fight," Frank Verrastro, director of energy and security at the
Center for Security and International Studies, told me in an email.
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