Kemp: Oil Prices and Saudi Diplomacy
Certainly those factors (sluggish demand, rising non-OPEC supply, and behavioural reactions in financialised commodity markets) can provide a plausible explanation for the near-halving of oil prices since June. There is no need to invoke a conspiracy theory about a secret plan to damage Iran and Russia to explain recent price history.
Some conspiracists respond by suggesting that while Saudi Arabia may not have triggered the price slide, it has done nothing to prevent it. But there is nothing Saudi Arabia could have done to keep prices near $100 a barrel in the medium term.
As Naimi explained, if Saudi Arabia had cut production, it would simply have encouraged more output from higher-cost producers in the United States, Brazil and elsewhere. The kingdom would have lost market share without gaining an enduring improvement in price.
If lower oil prices provide a diplomatic benefit to Saudi Arabia and the United States by intensifying economic pressure on hostile states such as Iran, Russia and Venezuela, that has been a side benefit, not the principal policy objective.
Saudi Arabia's only rational response to rising shale oil supplies and stagnating demand for crude was to allow prices to fall to curb shale investment and buy back some of the demand growth that had been lost.
To read a conspiracy into recent events is both unnecessary and entirely unproven. Proponents of the "oil as a diplomatic weapon" theory have not cited a single piece of direct evidence. In the circumstances, there is no reason to doubt the Saudi oil minister's own explanation.
In the past, I have criticised Saudi policymakers for not communicating their strategy more clearly, creating an information vacuum into which outsiders have projected their own views.
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