Saudi arabias king abdullah confirms unintentionally

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Unformatted text preview: their output substantially reflecting demandandsupplyshocksaswell as strategic moves as well as their command over surplus capacity. An extreme example is Saudi Arabia (ignoringwarriddenIraq)withaproduction maximum during the last 30 years of above 10 million barrels per day (mb/d) during 2003–2008 but also already in 1980 and 1981 and a minimum of 3.6 mb/d in 1985. This control over spare capacity highlights the strategic role of OPECasresidualsupplieratleastofitscoremembersandin particular of Saudi Arabia.1As a consequence, the marginal barrel is not high cost as economic efficiency requires but low cost, presumably from Saudi Arabia pumping oil for costs negligible compared with current prices. Saudi Arabia’s King Abdullah confirms (unintentionally) this strategic position by saying (quoted from Hamilton 2009) “I keep no secret from you that when there were some new finds, I told them, no, leave it in the ground, with grace from god, our children need it.” Empirical investigations of OPEC as a cartel start with Griffin (1985) followed by Griffin and Xiong (1997) and more recently in Mason and Polasky (2005) all indicating that OPEC fits neither the competitive nor the cartel description neatly. 80 Oil DDW 2012 1 Oil producers have influence to manipulate prices – Various tricks can hide it Elhefnawy, previously published on international and security issues in journals including Astropolitics, International Security and Parameters, Visiting Assistant Professor of Literature at the University of Miami, 08 Nader Elhefnawy, previously published on international and security issues in journals including Astropolitics, International Security and Parameters, Visiting Assistant Professor of Literature at the University of Miami, 3-25-08, [“The Impending Oil Shock,” Survival: Global Politics and Strategy, 50:2, 37-66, www.tandfonline.com/doi/abs/10.1080/00396330802034242] E. Liu Despite these caveats, the greater influence oil exporters will enjoy will be very real, and oil exporters may take radical action if they see their vital national interests as being at stake. Indeed, the most likely scenario for an attempt by Iran to disrupt the flow of oil from the Persian Gulf may be the event of a conflict with the United States over a different issue (such as Iran’s nuclear programme). It also has to be remembered that, at least in the short term, oil consumption is relatively inelastic, and where consumer buying patterns are concerned, the tendency has been to revert to previous behaviour as soon as the crisis of the moment is over, as has been the case in the United States since the 1980s.43 Moreover, even if wealthy states can endure price shocks, poorer countries will remain susceptible, as the recent history of Russia using its ability to supply cheap oil and gas as an instrument of power over former Soviet republics such as Ukraine, and more recently Georgia, demonstrates.44 There are passive as well as active ways to manipulate prices, as in the case of countries that refuse to enlarge their production capacity in line with world demand ( as many experts consider to be the case with Saudi Arabia).45 Moreover, the manipulation of supply and prices need not be part of an overt policy. An oil producer interested in following such a strategy can always conceal such tinkering behind ‘market’ decisions, or attribute deliberate disruptions to other causes, an instrument Saudi Arabia has notably been thought to have wielded...
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