Bruce Bisset: Dark politics taint cheap fuel

Oil is arguably a volatile resource.

While end users should eventually enjoy lower prices at the pumps that reflect the halving of the international oil price, whether the cause or effect of this latest "oil shock" is good news depends on your geopolitical point of view.

Certainly there is no surety the market will stay low for any length of time, and even if it does it may cause more problems than it solves. Oil is arguably the most volatile resource, if only because it is a necessary evil on which all economies rely yet is easily manipulated by just one - Saudi Arabia.

Despite the huge jump in production in the US in the past six years from shale deposits, the Saudis, by dint of their production capacity and their leadership of Opec, retain the whip hand when it comes to setting price.

Their strict brand of petro-Islam drives the way they use their eminence and operates independent of conventional market forces, reminding us of the real reasons the Middle East has been and is a super-power battlefield: oil runs the world.

And the Saudis still run oil.

The major reason prices have halved since this time last year is their refusal to drop production to prop up price, a refusal that is aimed primarily at Iran and Russia - to significant effect. Iran is targeted because it is the main rival for regional supremacy, with oil reserves and infrastructure to challenge the Saudis. But Iran needs high prices - around $130 per barrel - to maintain its budgets.

Sustained lower prices will send its would-be nuclear economy into depression. Being political and religious rivals, that's just how the Saudis like it.

Russia is targeted because it plays to the Saudis' adopted US/Nato-allied defence strategy, and weakening Russia lessens its influence in the region while also offering some payback for Russia's part in the "oil glut" of the 1980s - the only time the Saudis temporarily lost control of world oil markets; the only time, that is, since 1973 when OPEC first flexed its muscle with the Arab states slapping an oil embargo on many Western countries for their support of Israel during the Yom Kippur War with Egypt and Syria.

In truth this was a convenient excuse. They were already chafing because after the US abandoned the gold standard in 1971 the dollar depreciated, meaning Opec producers, paid in US dollars, faced shrinking margins.

The Israeli war allowed the Saudis to combine the interests of capitalism with the interests of religious zealotry to reinforce their assumed leadership of the Islamic world. Today's situation is not dissimilar.

Here that first oil shock generated the "Think Big" projects of [former prime minister Rob] Muldoon, designed to insulate New Zealand from global anomalies; but it was predicated on sustained high prices, and the glut a decade later undermined any benefit.

This latest shock will restrict development, if only because the cost of production, especially for unconventional and deep-sea wells, is currently well in excess of projected returns. So the much-vaunted exploration programme National has been promoting will likely be severely curtailed, pushing any potential "oil boom" further into the future. Oil companies may still be willing, but their funders - Wall St investors - will be swapping into industries that offer more security.

Despite all that "peak oil" has only been delayed, not dispensed with, and the way the oil industry is managed through its final decades will continue to depend on the will of those who rule the desert sands.

That's the right of it.

-Bruce Bisset is a freelance writer and poet.