Israel, Saudi Arabia, and The Price of Oil

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Ecclesiastes 7:1 tells us that "A good name is better than a good oil".

In 1973, Israeli Prime Minister Golda Meir famously told then West German Chancellor Willy Brandt.  "Let me tell you something that we Israelis have against Moses. He took us forty years through the desert -- in order to bring us to the one spot in the Middle East that has no oil!" After the Yom Kippur War in October 1973, the oil price quadrupled from $3 to $12 a barrel and the Arab states of OPEC held the world economy by the short and curlies. A number of  countries broke off diplomatic relations with Israel - who wants to back a loser?

Israel has never had it easy with its water and energy needs. The Talmud tractate Taanit relates that Israel does not have a plentiful source of water like the Nile in Egypt, so that its inhabitants need to constantly pray for rain and sustenance. Fast forward two thousand years, and the development of world leading technology in the field of desalination has been a game changer. 


Ironically, recent discoveries of massive oil reserves in Israel have alleviated many worries in the energy area, though the Global Warming brigade are not exactly jumping for joy.

Oil currently stands at $43 a barrel. There is massive overproduction world-wide, including the American shale market and soon to be sanctions-free Iran.The Saudis need north of $100 a barrel to break even. The US shale industry is getting more efficient, and could well be largely sustainable at $40 a barrel. Saudi foreign assets held by the central bank were down in August 2015 from $730bn a year ago to $654.5bn.  The Saudi welfare state is massive, and tax virtually non-existent.  They are running a deficit of billions of dollars every month. A toxic mix of low oil prices and large fiscal deficits could lead to very unpopular reforms, such as introducing VAT and cutting energy subsidies. But OPEC continues to play poker, and Sheikh Micawber has total faith that "something will turn up". Maybe something will turn up to hike the oil price, or maybe there will be revolution in Saudi as the good times stop rolling. Newspapers and politicians are no longer afraid to criticize Saudi Arabia on human rights and their unwillingness to take any Syrian refugees.

People who make predictions about the Middle East are usually wrong. Have a look at the 2015 predictions, including the certain fall of Assad in Syria. As Bob sang in 1964, which we can apply to 1973: 

For the loser now
Will be later to win
For the times they are a-changin'   

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