ROBERT F. WORTH / JAD MOUAWAD
The New York Times
June 21, 2008
JIDDA, Saudi Arabia — The rulers of this conservative desert kingdom have always avoided the limelight.
But by hosting a global energy forum here on Sunday during the worst oil crisis in decades, the Saudis are taking a risky step. The meeting will draw new attention to the Saudis' role in a boom that has pushed oil prices close to $140 a barrel and caused protests from Britain to Bangladesh.
If the Saudis do not announce strong steps at the meeting to increase production, they could draw new wrath from the world's major oil consumers — conveniently gathered under one roof — who already tend to see Saudi Arabia and its OPEC allies as the villains pushing up prices and profits.
If they do increase production, the Saudis run the risk that it will not be enough to stop the upward price spiral. That could undermine their vaunted reputation as the one country with the power to calm the volatile oil market, and might in turn push prices even higher.
The meeting has provoked dissent within OPEC. Venezuela, angry at the prospect of a unilateral Saudi decision to increase oil production, initially threatened to shun the meeting, and Iran has criticized the Saudis for being too hasty.
But for the Saudis, the meeting is a crucial opportunity both to calm the market's volatility and to get their point of view across. They say they have been unfairly blamed for the crisis, which has seen the price of oil rise 40 percent since the start of the year.
"There has been a great deal of political propaganda about this in the West," said Ihsan Ali Bu Hulaiga, an economic analyst. "Maybe this conference will be able to shed light on the facts."
Saudi officials acknowledge that fast growth in China and India has stimulated demand and contributed to the oil price spike. But they say the chief causes of the price increase are speculation in oil futures markets and a shortage of capacity to refine oil into gasoline in rich countries. For that reason, there is widespread anger that oil producers here are being blamed for high prices. Last week some members of the Kuwaiti Parliament said pumping more oil would be harmful to their country's economic prospects, and suggested that Kuwait should instead be conserving its oil. The fact that the United States has been reluctant to drill for oil in some of its own territories exacerbates the resentment.
"People keep asking: is the U.S. trying to dry up our reserves and keep theirs for the future?" said Khaled al-Dakhil, a professor of political sociology at King Saud University.
The resentment may seem surprising in light of the vast profits Saudi Arabia and other gulf nations have reaped from the oil boom. But many Saudis have seen few tangible benefits. Inflation, caused partly by higher oil prices, has pushed up food prices drastically, cutting into the income of poor and middle-class Saudis.
And much of the oil profits have been spent on ambitious long-term government efforts, including new industrial cities and a vast new university. Many Saudis felt that the wealth created here by the oil shocks of the 1970s was largely wasted, and the Saudi government has chosen a different approach this time, building an economy that can outlast its oil.
"During the first oil boom, people squandered the money, but now we're investing in smarter ways," said Amr Khashoggi, a prominent businessman here. "We've learned our lesson."
At the same time, Saudi officials recognize that the fast-rising price of oil — for all the vast profits it has brought them in the past year — also represents a significant risk. If prices continue to rise, they could prompt an economic downturn or a faster shift toward alternative energy sources that could sharply reduce demand, causing oil profits to collapse.
The Saudi strategy also risks breaking a broad consensus that has served OPEC well since the 1998 oil crisis, when prices collapsed. Since then, countries like Iran, Venezuela and Saudi Arabia set aside their political differences to work together and regain clout in the market. The result has been a 13-fold increase in oil prices since the lows of the 1990s.
Now, even as they head into the meeting, OPEC producers, who have been left in the dark about Saudi intentions, are split about the need for increased supplies. The current president of OPEC, Chakib Khelil, who is also Algeria's oil minister, said that any request to raise output was "illogical."
He said that gains in oil had been driven by "speculation and geopolitical tension," according to Algérie Presse Service.
Saudi Arabia already increased its production by 300,000 barrels a day, or 3 percent, to 9.45 million barrels a day last month after President Bush visited the kingdom. But that did little to slow down the rise in prices.
Discussions about any new increase in production could also backfire, reminding everyone how little spare capacity is actually available worldwide. Members of the oil cartel hold less than two million barrels a day of unused production capacity, the bulk of which lies in Saudi Arabia.
Robert F. Worth reported from Jidda, and Jad Mouawad from New York.