The Palestinian Factor

November 29, 2007

I have been saying in my speaking gigs since September that the price of crude and the Middle-East peace talks were linked, and that Condi Rice was sent off on shuttle diplomacy in order to turn the spigots wider in Saudi Arabia. I couldn't prove that, it was just speculation, but the evidence seems to be mounting now that something like that is going on.

First, there is still controversy about whether Saudi Arabia, the only country in the world with spare capacity, actually has any spare capacity. ASPO-Houston did a breakout session on this, and on the one side you have the good people at the Oil Drum, who admit nobody really knows, and Matt Simmons, who says we should know that by early in 2008 because the Saudis have promised to OPEC and they will or will not bring oil to market by then. On the other side you have the government indices, think tanks and markets, who think there is still reserve capacity, but suspect the Saudis are intentionally squeezing supply.

My guess is that the White House, filled with oil people, is in that second camp, despite what Matt Simmons or the CIA tells them. It is not that they really care about the price of unleaded or what it will do to the US economy, but lately they are having trouble getting supplemental spending for war through Congress, and since the military is the largest consumer of petroleum products, price begins to matter.

The Saudis have always been strong backers of Palestine, as have other Arab nations to a greater or lesser degree. What has been happening in the West Bank and Gaza for two years and counting has been very shocking to them, and to say they are angry about the Bush administration's unwillingness to interfere with Israeli policies that are even unpopular in Israel is an understatement.

To me it looks like the Saudis finally decided, about late July, to do some dog training. If the Palestinians were going to suffer,USAnians would suffer more. If the Palestinians caught a break, so would the world. So the squeeze began, and the markets reacted. You can see a graph of it here in cents per gallon of crude oil: http://tonto.eia.doe.gov/oog/info/twip/twip.asp.

The second part of the dog training is the reward. So, after Bush did the elaborate Kabuki Show in Annapolis for the assembled Arab world,they threw him a biscuit. Oil dropped to $90 per barrel (although it is back up today on news of a Canadian pipeline fire). Abu Dhabi bought 5% of Citigroup for 7.5 billion, which staved off the threat of default from the subprime meltdown.

Another subprime victim was Bear Sterns, who was just rescued with a billon-dollar infusion by China to create a trade center in Hong Kong. That is less about Palestine and more about saving the dollar,which China has a lot of and is starting to worry about.

All of this serves to postpone, for a moment, the inevitable. Will Tel Aviv agree to share control of Jerusalem, give up the Golan, or permit a right of return? Not likely. Will Ramalah accept a two state solution based on a fragmented non-contiguous map of the Palestinian Territories, nullification of its elections, and a wall 2 football fields wide and nearly 4 times longer than the Berlin Wall?I don't think so. And Condi Rice is no Jimmy Carter.

Annapolis buys Bush a year to show once more how elusive peace can be. For those needing to get out of the stock market, sell suburban real estate, and stockpile tools and supplies, it is a little more breathing room.