A Closer Look at a Strategy of Maintaining Production alongside Declining Reserves
By JC Collins
It is common for companies faced with financial hardship to run as long, hard, and fast as they can for cash. There are many companies today which have employed such a strategy in this latest downturn in crude prices and increasing world-wide deflation. But applying such a strategy to a state, or perhaps a monarchy, is not something which most analysts would consider.
The actual reserves held by Saudi Arabia are not a very well-kept secret. The kingdom has done its best over the years to confuse the world as to its actual petroleum reserves, but most in the industry are well aware of the fact that the reserves are in decline. Saudi has been investing in alternative sources of energy, alongside China, which is extremely telling of the efforts and planning which the House of Saud is implementing as a strategy to offset declining petroleum revenue.
This huge revenue has allowed the Saud monarchy to maintain tight control of the socioeconomics of the country. As the reserves peak and begin to decline in the coming years, if it hasn’t already, the monarchies ability to maintain that socioeconomic control will wane.
Saudi, faced with the reality of decreasing production down the road, could very well have implemented a strategy of pushing hard on current production and accumulate as much cash as possible in the lead up too, what could be considered the inevitable collapse of the House of Saud. This money could buy them exile elsewhere, where they can avoid the punishment of beheading which they themselves imposed upon hundreds, if not thousands.
There is a growing consensus that there may be a division within the Saud family itself. This is the one thing that could very well finally topple the monarchy. The House of Saud could be tearing itself apart with opposing strategies.
One strategy is based on maintaining socioeconomic and military control over the country, and working with other nations, such as China, on developing business contracts which are not based on crude, but on other sources of revenue which can be gained from alternative energy sources, such as nuclear.
The other strategy involves a conclusion where the Shiite majority which is building up around Saudi Arabia will eventually incite revolution within the country as the conflict in Yemen spreads further across the border, and deeper regional integration between the Shiite players takes place.
The agreement between the United States and Iran, and the lifting of sanctions, which could come as early as this Monday, are tell-tale signs that the strategic balance in the region is shifting. The only reason the relationship of convenience existed between the US and Saudi Arabia was because of the large petroleum reserves.
These reserves in Saudi helped support the petrodollar system between the two countries. Most readers are well aware of this arrangement, so we won’t go into detail, but now that the need to support the USD as the sole primary reserve currency is decreasing, along with Saudi reserves, the shift in alliances and crude exports becomes more obvious.
The lifting of the 40 year old crude exporting ban by the US is another obvious sign that this shift is taking place.
Saudi Arabia is well aware of the shifting alliances. The changing nature of the relationship between Iran and the US is clear. The strategy by a faction within the House of Saud on running for cash while driving down the price of oil, in an attempt to grab what they can while they can, before the geopolitical shift and revolution happens, is likely working as they intended.
There’s another part to this equation which is somewhat worrisome. Israel has long depended on Saudi Arabia to act as a buffer against the larger Shiite majority in the region. The immediate power vacuum which would exist in the first days and weeks after a collapse of Saudi Arabia would be of great concern for Israel.
It is reasonable to consider that American interests are now more aligned with Israel than with Saudi Arabia. Would Washington allow the House of Saud to collapse and increase the Shiite threat against Israel?
Shiite Iran and Iraq maintain large petroleum reserves. Whether or not there is a petrodollar arrangement with Saudi, or future arrangements with Iran, these reserves will remain important to American semi-hegemonic interests. The budding US relationship with Iran should be worrisome to both Israel and Saudi Arabia.
The Islamic revolution which struck Iran in 1979 worked in America’s favor. Based on the parameters of the petrodollar arrangement, the reliance of Saudi Arabia on the American military to counter-balance the Iranian “threat” ensured the petrodollar arrangement performed as intended, and perhaps even acted as a method by which US interest could manage Israeli regional aspirations.
As backwards as it may appear, it is my conclusion is that the Iranian Revolution of 1979 was instigated by western interests, supported by international banking interests, for the purpose of maintaining hegemonic dollar balance within the region. The international gamesmanship of espionage and shifting alliances has worked in Saudi Arabia’s favor only because the larger and more dominate partner in the petrodollar arrangement desired it too.
Saudi Arabia, like many other states and monarchies, has been used by the international banking interests. With declining petroleum reserves, their position within the larger macroeconomic and socioeconomic parameters is no longer required. As such, they will likely suffer a similar Islamic Revolution which over-turned Iran. An event, which worked in the interest of those who plot such things.
What will replace the House of Saud has, in a probability, been decided, and the actors are waiting on the sidelines for the stage lights to come on.
Israel has managed to grab land in past periods of instability in the region. This may happen again, but a similar method of managing Israel aspirations will fall into place. The Israeli willingness to allow itself to be encircled by a Shiite majority is the wild card as this plays out. But Israel, like all other nations, are a chess piece in a game of international banking. – JC