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Don’t Sweat the Saudi Oil Disruption

Hand-wringing over diminished supply and prices will only lead to war talk. Besides, the market will quickly adjust.
saudi arabia oil

The media coverage of the military attack on Saudi oil facilities is reminiscent of the hysteria over the Arab oil embargo and petroleum price spikes of the 1970s. Such theatrics were not needed then and are certainly not needed now. They threaten to drag the United States further into the Greater Middle East. 

American presidents have been trying recently to focus on more important potential adversaries, such as China and Russia. But they always seem to get sucked back into the Middle East. Yet the region—and its main export, oil—were never as strategic to the United States as its security bureaucracies and media claimed.

Even during the 1970s, paying the market price for oil on the international market was the best way to ensure adequate supplies for the American economy. Establishing numerous U.S. bases in the Persian Gulf region was never a cost-effective way of “defending” oil—the cost of the military forces ended up exceeding the value of Persian Gulf oil imported into the United States. 

Despite the existence of the Organization of Petroleum Exporting Countries (OPEC), commodity cartels in general have had a poor record of elevating long-term prices beyond what markets will generate. Sure, the price of oil can increase in the short term through a drop in production—either through a purposeful OPEC restriction on pumping quotas for its members, a natural disaster hitting oil facilities, or a manmade interruption such as the attack on the Saudi oil facilities.

But the price hike then spurs either cheating on the quotas by cartel members or an increase in production by oil producers not in the cartel, thus reducing the price in the long term to market levels. And nowadays, with the United States returning to its former position as the world’s largest oil producer as a result of fracking, concerns about Middle Eastern oil should take up even less of policymakers’ time. 

The United States should not be lured into a war with Iran over this incident, even if the weapons used against the Saudi oil facilities were produced in Iran—and even if they were launched from there. We should recall that the Saudis for years have been waging a brutal war in Yemen, deliberately and indiscriminately bombing the Iranian-supported Houthi group, thus killing many civilians and creating the world’s most severe humanitarian crisis in the Arab world’s poorest country. The Saudis should have expected that they might not be spared blowback after using such brutal tactics.

The United States, because of its excessive hatred of Iran, has provided key military support to Saudi Arabia for their war effort, though this support has been condemned by Congress. And if Iran did give or sell more sophisticated weapons to the Houthis, perhaps it is simply responding to the United States welching on its commitment to the nuclear deal. As part of a “maximum pressure” campaign initiated after its withdrawal from the agreement, the United States seems to be directing blame to Iran for the attacks on the oil facilities, even though there has yet been no evidence provided that anyone other than the Houthis, who have claimed responsibility, are behind them. 

As a result of the attacks, the price of oil is likely to go up in the short term but should decrease in the long term thanks to reserves coming into the market, increased production by other countries taking advantage of higher prices, and the damaged Saudi facilities being repaired. 

And even if the oil price stays elevated for a while, industrialized economies have historically shown resiliency in the face of such spikes. That’s why there’s no need for histrionics or war. In fact, the United States should cease to give any help to the Saudi war effort against the Houthis and pressure them to settle the conflict—thus removing future danger to Saudi oil assets. 

Ivan Eland is a senior fellow at the Independent Institute and director of the Independent Institute’s Center on Peace & Liberty. His new book, War and the Rogue Presidency: Restoring the Republic After Congressional Failure, was released in May 2019.