A worker adjusts the flow of an oil pipe at a refinery in Bassrah, Iraq
Scott MacLeod: Saddam is engaged in a long-term struggle to break out of isolation and reassert Iraq's position in the Middle East and the world, and one of his weapons is the threat of spiking oil prices. Nobody knows whether hell keep his taps turned off for a week or a month or longer. It's mostly a symbolic effort on Saddam's part to show that he's a player — a major oil producer, a major partner of other oil producers like Saudi Arabia and a major economic partner with countries like Russia, China and France. And, of course, it could be very worrying to the Western economies in the long term if Iraq takes its production off the market.
Of course, Saudi Arabia has both the capacity and the political will to make up for whatever Iraq takes off the market, and in the long term, therefore, one has to imagine that the price of oil won't be affected. But when you're looking at a relatively high price right now, for a number of reasons, you don't really want anyone taking steps that could drive it up further in the short term.
Saddam's timing was to coincide with last week's United Nations' vote to extend sanctions against Iraq and the oil-for-food program for 30 days. In response, you have Baghdad saying "We're not just going to stand still while you try to determine our fate." And in the larger context, Saddam's struggle against sanctions is working. The U.N. is no longer talking about how to get weapons inspectors back in to Iraq or tightening sanctions. What they're talking about now is how to loosen the sanctions. And that's because Saddam has remained very steadfast over the past decade, and used his international leverage as best he could under the circumstances.
If the price begins to rise, how strongly can Washington rely on the Saudis to pump that extra oil and neutralize the effect of Saddam's withdrawal from the market?
Saudi Arabia remains a friendly country and will likely try to avoid any destabilization of oil prices by Baghdad, but it's also important to note that Crown Prince Abdullah snubbed an invitation to visit Washington during an international tour that began Monday. Saudi diplomats tell me this is a clear message to Washington that the Saudis are unhappy with the Bush administration's performance in addressing Arab concerns in the Middle East — first and foremost the way they've kept their hands off the Israeli-Palestinian conflict. The Saudis, like most Arabs, have blamed the crisis in the region on what they see as Israel's intransigence and reluctance to provide a genuine Palestinian state, and they're angry with the U.S. for backing that intransigence. They also feel that Iraq is being unfairly punished for something that it did ten years ago, and they don't like the suggestion that Saddam must go before the world can have anything to do with Iraq again.
The Saudis don't like Saddam more than anyone else, but they're living in his neighborhood. They face tremendous political pressure from their own streets where sanctions against Iraq are highly unpopular and have aroused a great deal of anger. And they're also concerned about what they see as a careless policy that threatens the long-term stability and territorial integrity of Iraq, which could result in it being broken up in a civil war of the type seen in Lebanon in the 1970s. And that could be disastrous for the neighborhood.
The Saudis will still likely make up the shortfall because they have a keen understanding of the relationship between oil prices and the global economy, and they want to keep oil prices stable. But they won't simply dance to Washington's tune. Saddam is taking his oil off the market at a time when there's a lot of disenchantment with the U.S. among other oil producers, and that creates more uncertainty about what they'll do. Nobody was expecting Tuesday's OPEC meeting to either increase or decrease the supply, but Saddam making a move like this at a moment of instability in the Middle East can't augur well for the oil price in the future.