Is the Oil Business Becoming the Natural Resource Equivalent of a Failed State?

Cross-posted with TomDispatch.com

When it comes to news about Saudi Arabia, the execution of an oppositional Shiite cleric, Nimr al-Nimr, has topped the headlines recently -- and small wonder. Aging King Salman bin Abdulaziz al-Saud and his 30-year-old son, Deputy Crown Prince Mohammed bin Salman, the new defense minister who has already involved his country in a classic quagmire war in Yemen, clearly intended that death as a regional provocation. The new Saudi leadership even refused to return the cleric's body to his family for burial, but interred it with the many al-Qaeda terror suspects killed at the same time, some beheaded. After death, in other words, al-Nimr was left in uncomfortable company. Think of it as the ultimate beyond-the-grave insult.

The provocative message embedded in the announcement of his execution was so obvious that, in Shia Iran, crowds supporting that country's religious hardliners (with their own hideous execution policies) promptly torched the Saudi embassy in Tehran. In the following days, as the Saudis broke diplomatic relations with Iran, ended a failing truce in Yemen (promptly bombing a home for the blind and also hitting the Iranian embassy in Sana'a), and rallied Sunni neighboring states to similarly break ties or at least downgrade relations, the whole, roiling region hit the news as war fears rose.

On September 10, 2001, had someone predicted that the oil heartlands of the planet would, within a decade and a half, become a roiling mix of failed states, fierce sectarian religious and ethnic struggles, spreading terror groups, and the first terror "caliphate" in history, if you had suggested that Saudi Arabia, one of the more stable countries on the planet, might someday begin to come unglued, that Libya would essentially collapse, Syria be no more, and Iraq be transformed into a riven tripartite land, you would surely have been laughed out of any room of pundits and experts. So the recent intensification of such a state of affairs, involving two countries in those heartlands with gigantic energy reserves, is big news indeed -- but not perhaps the biggest news in the region.

My own pick might be a story that passed largely unnoticed in our American world. Sitting atop some of the planet's great oil reserves and getting 73% of their revenues from oil sales (income that dropped by 23% last year), the Saudi royals just hiked the domestic price of gas at the pump by 40%. Though it still remains dirt cheap by global standards, that act -- which is like charging for salt water in the middle of the ocean -- is an indication that something startling is going on. And note that, in the years to come, that kingdom's rulers are planning to cut back on similar subsidies for "electricity, water, diesel, and kerosene." In other words, the world's largest oil producer and a country of striking wealth (and foreign reserves) no longer feels comfortable giving away gas to its own population, even though this is part of a bargain it struck long ago for peace in the kingdom.

And the reason for this has little to do with Iran or Syria or Yemen or Iraq or the Islamic State. The problem is far more basic, as TomDispatch's resident energy expert Michael Klare points out in "The Oil Pricequake" today. It's the price of oil, which in the last 18 months has dropped through the floor. In a sense, the oil business -- with its constellation of giant energy firms, until recently among the most profitable companies in history, and its energy-producing states, until recently riding high -- may prove to be the natural-resource equivalent of a failed state, and, as Klare makes clear, the changing economics of oil will transform the political face of the planet. So keep your eye on Saudi Arabia. Things there could get ugly indeed.