Sunday, June 8, 2008

When the Student Becomes The Master


"An economic system in which the means of production and distribution are privately or corporately owned and development is proportionate to the accumulation and reinvestment of profits gained in a free market"

If the Bush Administration has faltered in its efforts to bring "democracy" to the Middle East, it has certainly succeeded in exporting its brand of capitalism to Saudi Arabia. When it comes to oil, Saudi Arabia gets an A+ in understanding "supply and demand", "market forces", and "business friendships."

excerpt from:
Los Angeles Times: New forces fraying U.S.-Saudi oil ties
by Paul Richter

For decades, Saudi Arabia worked with its dominant customer, the United States, to keep world oil markets stable and advance common political goals.

But the surging price of oil, which soared more than $10 a barrel Friday to a record-high $138.54, has made it plain that those days are over. New forces, including a weak dollar and an oil-thirsty Asia, have blunted the United States' leverage and helped sour the two countries' relationship.

As gasoline prices have risen, the White House has unsuccessfully exhorted the Saudis to step up production, and Congress has threatened retaliation. But the situation now is a far cry from the days when the U.S. economy dominated the direction of the petroleum market.

"That gave us leverage," said Greg Priddy, an oil analyst at the Eurasia Group, a New York-based risk assessment firm. "There's certainly a perception that the power equation has changed."

The weakening of the economic relationship comes when the vital U.S.-Saudi security relationship also has been fraying.

In the 1980s, the U.S.-Saudi bond that kept oil prices low was credited with helping weaken the Soviet Union during the waning days of the Cold War. And it helped keep markets stable after Iraq's 1990 invasion of Kuwait.

But the Saudi government has been dismayed by the consequences of the war in Iraq and by what it sees as a weak Bush administration commitment to the Palestinians.

The relationship is shaping up as a political issue for the fall campaign, certainly among congressional candidates and perhaps among presidential candidates.

With a 20-million-barrel-per-day habit, the U.S. remains the world's largest oil customer, even though its daily consumption over the years has dropped from one-third of total daily production to one-fourth.

But the U.S. can no longer guarantee on its own that producers will have the markets they need for their oil. Nor can the Saudis, alone, ramp up production in sufficient amounts to stabilize prices.

China and other Asian nations now use about 17 million barrels a day. That's up more than 20% since 2003, and booming growth is expected to continue.

With the shift in buying power, the Saudis are cultivating important Chinese customers, analysts say. Saudi Arabia recently contributed $50 million for Chinese earthquake relief, and King Abdullah has visited China.

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