Saudi Oil: It's Not about North Dakota, It's about ISIS

While the U.S. remains the 800-pound gorilla in international relations, not everything occurring in the international realm comes in response to events in the U.S. This goes double for events in the Middle East. Reports that Saudi Arabia maintains current high production levels of oil despite plummeting oil prices to drive U.S. oil “frackers” out of business is a prime example of mistaking an effect of Saudi policy for the cause of Saudi policy.

The “fracking” theory overestimates the capability of Saudi Arabia to respond to the significant outward shift in the supply curve of oil resulting from the application of fracking technology. More significantly, it underestimates the threat that ISIS poses to Saudi rulers, and the effectiveness of lower oil price as a weapon against ISIS.

Although increasingly informed, Americans still often view Islam as a monolithic whole; many do well just to distinguish between Sunni Islam (the largest group in Islam, including a large majority of the population in Saudi Arabia) and Shia Islam (most notably a majority of the population in Iran). Nonetheless, there are significant theological differences within in Sunni Islam as well, issuing out of, and influencing, political views as well as religious views.

While Sunni Muslims dominate both Saudi leadership and the leadership of ISIS, this actually makes ISIS a greater threat to the House of Saud than, say, the much larger and militarily powerful Shia leadership just across the Gulf in Iran. (Iranian leaders desire to cause mischief for the Saudis in their areas of control and influence. Nonetheless, because Iran’s leadership is Shia, it does not represent a direct threat to domestic control of the House of Saud in the overwhelmingly Sunni regions of Arabia.)

Religion and politics in Saudi Arabia results from an alliance struck in the 1800s between the House of Saud and Salafi (also called Wahhabi) religious leaders. The government serves as a patron of Salafism in Saudi Arabia and elsewhere, and Salafi clerics and leaders, by and large, support the Saudi government. This arrangement has not been without its tensions—occasionally significant ones—but it worked and developed over the greater part of at least the last century and a half.

Beginning in the late 1970s, however, this arrangement came under heightened criticism and attack both within and without Saudi Arabia. Inside Saudi Arabia, a group of Saudi militants seized the Grand Mosque in 1979, arguing that the House of Saud had lost legitimacy as ruler of Arabia because it was so corrupt, and criticized Salafi clerics for being complicit in that corruption. (The movement was also millenarian, claiming that one of its leaders was the Islamic Mahdi, or redeemer, who precedes the Judgment. So while aspiring to greater purity in Islamic practice and theology, as does Salafism, it had significant differences as well.)

Perhaps more critically, Saudi permission to the U.S. to station troops on Saudi soil in the run up to the first Gulf War precipitated an irreparable split between Saud and a second stream of (largely) Sunni Islam, namely the international Jihadists who were initially activated by the Soviet invasion of Afghanistan.

Fast forward to the rise of ISIS, which evolved from one current in the internationalist jihad. ISIS, however, has been able to take advantage of the chaos created by the destruction of strong states in Iraq and Syria to take control of a significant amount of land in both areas.

Unlike the revolution in Shia Iran, however, ISIS preaches a theological message that resonates in significant ways with the aspiration to a purified Islam that is also at the heart of traditional Salafism.

ISIS is theologically and ideologically positioned to threaten the House of Saud, and the politico-religious arrangement inside Saudi Arabia, in ways that Shia Iran could never threaten Saudi rulers. If ISIS is able to take advantage of discontent, particularly among the young and the religious, inside Saudi Arabia with the House of Saud and with the current political-religious arrangement between the House and religious leaders, ISIS could effectively, and quickly, threaten the stability of Saudi Arabia and the continued rule of the House of Saud.

As a consequence, Saudi Arabia is in a full-court press against ISIS.

In addition to supporting opposition forces fighting ISIS, Saudi Arabia has an additional weapon it can deploy against ISIS, even if it is as blunt a weapon as the global price of oil. It was a little less than a year and a half ago that the price of oil began its decline with the Saudi decision to keep pumping despite increasing global supplies of oil. That was only several months after ISIS consolidated its control of several important oil fields in eastern Syria, and then later in western Iraq.

At that time, much of the oil ISIS pumped found its way into international trade. The price was sufficiently high to entice third-parties to transport and sell the oil.

While the amount of ISIS oil is a drop in the bucket relative to overall global oil production, it was one of the top sources of revenue for ISIS—revenue with which to pay soldiers, buy arms, prosecute its war, and pay for traditional government functions in areas it controls.

A few months after ISIS consolidated control of Syrian oil fields and began exporting oil, Saudi Arabia announced that it would maintain oil production rather than seek to maintain the stability of the global price of oil. As a result of the Saudi decision to keep pumping oil, the price has decreased by over 60 percent during the subsequent year and a half.

The Saudi strategy appears to have had the intended effect. Because of the high price a year ago or so, most ISIS oil made it to the black market, according to Shwan Zulal, Managing director of Carduchi Consulting and an associated fellow at the European Centre for Energy and Resource Security, in a recent interview with Al Jeezera. Today, however, most of the oil stays in ISIS’s territory. It’s put to use, to be sure, but it generates significantly less revenue for ISIS to use in support of its goals. And pressure on ISIS oil is set to increase even more with recent reports are that the U.S. and allies have recently increased attacks on oil fields and transportation under ISIS control.

While manipulating the global price of oil seems to be the bluntest of tools with which to respond to ISIS given its small amount of production, Saudi willingness to do so reveals the seriousness with which it takes the threat from ISIS.

As a Sunni power, ISIS constitutes a threat to Saudi power that Shia Iran cannot rival, despite having significantly more people and recourses to draw on.

But what of the theory that Saudi Arabia is engaged in predatory pricing to drive oil frackers out of business? Couldn’t that also be true? The theory neglects that the oil in the ground in North Dakota, Texas, and elsewhere isn’t going anywhere. The development of fracking technology has resulted in a significant one-time increase in the supply of oil. There’s undoing this outward shift in the supply curve of oil. Driving the price of oil down to void a lower price of oil makes little sense, particular with the ease with which frackers can resume production if and when the price starts to edge up again (as it almost surely will). If and when Saudi Arabia no longer perceives ISIS as a threat, and begins once again to increase price, absent a simultaneous increase in the demand for oil, we won’t see the price of oil hit highs that they were just last year again for a long time. Whatever the result, however, the Saudis do not have North Dakota (or Texas) frackers in their line of sight. It’s not about the U.S. It’s about ISIS.

James R. Rogers is Associate Professor of Political Science at Texas A&M University.