The Saudi’s Panic: OPEC is Over

The crux dominating Islamic civilization is playing out in the House Saud’s inability to manage a particular component, a relation constitutive to markets; Hayek’s term of extended order was and remains teleological.  This is a profound metaphysical challenge for any civilization that is primarily archaic, tribal and dependent on overt authority.  The Saudi’s are grappling with the social consequences of globalization, namely market based political economies and their consequences.  The Saudi game of overt reliance on U.S. Presidency to underwrite their geopolitical positioning is over, they simply don’t have alternatives.  The Saudi’s don’t have any industrial base, they’ve never competed.  Its all playing out with the death of OPEC.  Let me explain.

OPEC is a cartel of producers, and in December they succeeded in rigging the market to shore up prices, this is after nearly two years of permanent crisis that is cheap oil.  With the liberalization of Mexico and the opening of Iranian exports, the players on a field once dominated by Saudi Arabia are growing.  The Saudi social base is changing and with it the value of their foreign exchange reserves, and most pointedly their political relation to their subjects.  The Saudi’s need to start reading Tocqueville.

Even the prospects of having any viable joint communique in OPEC spoke to previous decades of pampered normalcy.  That’s over and the Saudi’s have to begin diversifying their economy with applied leadership.  Now the reality of performance begins; this isn’t a reality that Islamic princes are used to dealing with.

In November, OPEC members sought to put a higher ceiling on domestic production, limiting exports to 1.2 million barrels a day.  This immediately lifted prices by 15%.  If the Saudi’s can manage the indigenous rivalries animating OPEC membership including Russia and Iran, then calls about the death of OPEC are premature.  However, the Saudi’s were forced to sit and talk with Iranians because the reality of permanent cheap oil was unpalatable.  Because it is difficult to police any accord, any agreement in late December 2016 will play out into spring 2017.  This isn’t over yet, but the signs aren’t good for the Saudi’s.

Given how the American shale oil and natural gas production eliminates the need for a swing producer, the American’s sought to parry OPEC’s communique by advancing into financial markets locking in future contracts at a price embodying stability; offsetting the cartel’s cut, the American’s have parried the high ceiling OPEC wanted to procure.

Going forward, here’s where the Saudi’s get damaged:  firms need to stay profitable, that means the dynamics of the industry are moving in a direction that isn’t manageable by any cartel.  American and other western industries are prioritizing higher returns over each barrel of output.  The resurgence of capital markets and their incipient need for sound monetary, political institutions isn’t something the Saudi’s field.

The Saudi’s need to learn from other sectors of the wests extended order, like manufacturing or logistics; the rise of sound, productive, independent and redundant spheres of autonomy constitutive of civil order/society is the source of how the west wins peak demand.

Because the hidebound Saudi’s aren’t used to competing; because they’ve never had to work inside the vortex of profitability; because Islamic Civilization abhors spheres of autonomy outside ‘commands’; because it doesn’t possess “the easy prospect” of commanding a civil society, THEY WILL FAIL.

START READING ALEXIS TOCQUEVILLE.

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About William Holland

Systematic Theologian/International Relations
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