Keep Politics Away From Oil
12 August, 2018
Saudi energy minister Khalid Al-Falih
The unprecedented Saudi reaction to what it termed Canadian meddling into its domestic affairs carries with it a very clear message:Keep politics away from oil.
Though Riyadh resorted to an unproportioned measures of freezing its commercial ties with Ottawa, recalling its ambassador and designating Canadian ambassador persona non grata, as well as suspending Saudi airlines trips and ending educational programs for thousands of Saudi students in Canadian universities, but energy minister Khalid Al-Falih found that it is necessary to reiterate that this political spat between the two countries should not have an impact on oil trade and assured Aramco customers that it is business as usual.
Ottawa on the other hand did not resort to a tit-for-tat reaction, hitting Riyadh where it hurts and stop importing Saudi oil. After all Canada is an oil producing country and given its production volume that amounts to 3.9 million barrels per day (bpd) and domestic consumption of 2 million bpd, it could easily do without any imported oil be it Saudi or non-Saudi.
But oil production is concentrated in western Canada, some 4,000 km away from eastern of the country that relies on imported crude. Because of the costly land transport and that oil is of heavier quality, imported oil of lighter brand through tankers using sea lanes made it more competitive. And that is why Saudi Arabia occupies the fifth rank among countries exporting oil to Canada. The first half of this year figures show that daily Canada imports from Saudi oil is priced at $10 million.
Relationship between politics and oil goes back more than a century ago, when in 1911 then the First Lord of Admiralty Winston Churchill decided that the British navy should convert to oil as a source of its power instead of coal. Securing enough supplies at reasonable price became part of national security strategies as needs increase for more oil. The climax of this relationship became visible during the 1973 Arab-Israeli war, when Arab oil producers led by Saudi Arabia staged an oil embargo against the United States and Netherlands for their support to Israel. For the following 35 years and seven successive American administrations the issue of reducing dependence on imported oil became a standing item in various energy strategies till a breakthrough took place during President Barak Obama administration with the advent of fracking technology that allowed US to tap its huge shale oil and gas reserves.
Yet oil, after all, is a commodity subject to the rule of supply and demand. That is a fact OPEC member countries learnt the hard way with various cycles of market ups and downs. That realization led OPEC members to keep politics away from their deliberations and maintain the economic nature of their organization, a move that helped them withstand an 8-year Iran-Iraqi war between the two founding members of the organization.
This lesson of keeping politics away from oil should resonate in both Sudan and South Sudan since oil represents the only hope for South Sudan to generate some income to manage its affairs, while at the same time it represents an opening for Sudan to alleviate its chronic economic hardship.
It was a co-incidence that the oil deal between Khartoum and Juba was inked the very day the peace deal between South Sudan warring factions was concluded. The two countries had a history when oil was caught in their political crossfire, the peak of which when Juba decided to shut down completely its production. It was with the help of its friends who were favoring the youngest new nation on earth, but that is no longer the case following the outbreak of the civil war five years ago and the loss of the high moral ground that South Sudan and its SPLA/M used to enjoy.
Moreover, the deal between Khartoum and Juba to forge ahead with their cooperation in the oil field even before concluding a political settlement helps in a way to facilitate that political deal and enabled reaching a power sharing agreement, which got every group on board. It is the oil revenue that is going to foot the bill and that is why it is important to keep it away from the politics of zero sum games that have dominated the scene for long.
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