The collapse of oil has shocked any number of economies over the last few months. The Russian central bank has scrambled to prop up the ruble, running rates as high as 17% to attract foreign capital. Canada’s own Bank actually cut rates by a quarter point, dropping the Canadian dollar significantly. All these responses look like good old fashioned supply and demand economics, but there is more than a little political theology that runs through these rates.
Oil prices aren’t set to recover quickly. Prince Alwaleed Bin Talal, chairman of Kingdom Holdings, nephew of the late King Abdullah, made it clear that Saudi Arabia will continue to double down on these prices. Saudi Arabia, a country that takes nearly 90 per cent of its budget from oil, remains committed to its levels of production, which is to say its supply. The prince blamed the fall in price on demand. The country will not be the first to blink.
“Eventually there’s no doubt that some countries have to blink and reduce their production…I don’t see Saudi Arabia or OPEC countries blinking,” he said.
Students of religion and history can clearly see at least two countries in the crosshairs of this game of brinkmanship: America, and its boom in fracking, and the rival Shia state of Iran. A fringe benefit has been the near collapse of the Russian ruble.
The list of Saudi grievances is long. Riyadh has been annoyed by American unwillingness, or incapacity, to resolve the Palestinian problem, its détente with Iran and seeming tolerance of Iranian nuclear ambitions. Far more than annoyed, it has been heavily engaged in the civil war in Syria, which has now spilled out and threatens the tenuous remains of the Iraqi government after the American withdrawal. Some have even labelled this a proxy war funded by the oil money of religious zealots around the Persian Gulf, lined up on Sunni/Shia religious lines.
Among the many sides of that war include somewhat famously Iran, its subsidized Shia brigades, and its increasingly unsteady overtures to the Kurds and to the West to protect Shias in the brutal path of destruction ISIL is cutting.
We may never see $100 a barrel again, warned Prince Alwaleed on Jan. 23, a statement that if true will cripple (North) America’s comparatively expensive oil production, and gut the state finances of its religious rival Iran. Maybe that’s a happy coincidence.
The oil politics of the Middle East will always have an Islamic political theology, or maybe more to the point rival theologies, running through it. And that’s a lesson that Governor Stephen Poloz, pun intended, took to the Bank.