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Just one more anecdote and then I have to run: When I was Pol/Mil and Econ back-up in the Saudi Embassy, the Saudi Foreign Minister was Saud al-Faisal. He came back from his first visit to Teheran and called the US Ambassador to vent his anger, and the Ambassador told me this story. Henry Kissinger came through Saudi right after the Oil Shock of '73 at Nixon's instructions to jawbone the Saudi oil price back to what it was before the October War [Ramadhan or Yom Kippur, depending on your POV] and the Saudis agreed to cut back, but only if the Shah also agreed. HK told the Saudis later that the Shah would not go along with a lower oil price. The Saudis and the Iranians were not talking to each other at the time and did not have diplomatic relations. But three years later, when the Saudi Minister finally went to Teheran after relations were restored, Saud al-Faisal asked the Shah why he didn't agree to lower the price of oil when Kissinger asked him. The Shah looked at the Saudi blankly and said "Kissinger never asked me to lower the price of oil."
As a result, among many consequences, the price of oil stayed high and oil men in Texas and the oil patch stayed rich, and possibly started to turn Republican according to Nixon's strategy to turn the entire South Republican. Also, because of the high price of oil, the Europeans were handed a huge economic blow. Remember the North Sea oil that made Maggie Thatcher such a success had not come onstream yet and Europe had to pay premium prices for its oil from elsewhere, while the USA was still largely self-sufficient. The downside, of course, was that Brezhnev started feeling his geopolitical muscle with the oil price steroids kicking into gear. He decided after the price stayed high to invade Afghanistan, and the rest, as they say, is the downward spiral of the USSR, with Ronald Reagan, the Pope, and Maggie Thatcher all giving it a good shove.
London School of Economics types would not agree, but they don't know sh!t!
2 comments :
What's the inside story behind the sudden decline in the price of oil in 1986?
After a very perceptive reader read my blog on the '82 price decline, he asked me about the 1986 price decrease to much lower levels and I realized that I may have conflated the numbers between '83 and '86. I wrote the piece way after my bedtime, and my enthusiasm may have exceeded my memory. Be that as it may, I do recall the Saudis being vexed about both the Iran Fao Peninsula campaign and the Afghan Mujahideen War, and perhaps these events may have contributed to diminishing the price.
But my interlocutor asked for inside baseball, and I can recall that I forecast in the early Fall that the Saudis would again lower production and manipulate prices to get GHWBush elected in November 1988. I can recall one oil industry expert remarking to me that I was the only oil writer to forecast the price decrease to about $10/barrel in '88 as being due to Saudi support for VP Bush's run at the presidency. I had been more or less corraborated in this forecast, if I remember correctly, by Nat Kern at Foreign Reports, though my own Saudi contacts in the Oil Ministry had let me know at an OPEC meeting that a price fall was in the cards.
My uneconomist guess is that the chart indicates the '83 price in 2004 dollars, which make my contemporaneous figures low by a factor of two and a half.
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