The oil weapon:
One doesn't have to look too far back in history to see Saudi Arabia, the world's largest oil exporter and producer, using the oil price to achieve its foreign policy objectives.
In 1973, Egyptian President Anwar Sadat convinced Saudi King Faisal to cut production and raise prices, then to go as far as embargoing oil exports, all with the goal of punishing the United States for supporting Israel against the Arab states. It worked. The “oil price shock” quadrupled prices.
It happened again in 1986, when Saudi Arabia-led OPEC allowed prices to drop precipitously, and then in 1990, when the Saudis sent prices plummeting as a way of taking out Russia, which was seen as a threat to their oil supremacy.
In 1998, they succeeded. When the oil price was halved from $25 to $12, Russia defaulted on its debt.
“What is the reason for the United States and some U.S. allies wanting to drive down the price of oil?” Venezuelan President Nicolas Maduro asked rhetorically in October. “To harm Russia.”
If in fact a deal was struck, it would make sense, considering the long-simmering rivalry between Saudi Arabia and its chief rival in the region: Iran.
“The conflict is now a full-blown proxy war between Iran and Saudi Arabia, which is playing out across the region,” Reuters reported on Dec. 15. “Both sides increasingly see their rivalry as a winner-take-all conflict:
The Saudis know the Iranians are vulnerable on the oil price. Experts say the country needs $140 a barrel oil to balance its budget; at sub-$60 prices, the Saudis succeed in pressuring Iran's supreme leader, Ayatollah Ali Khamanei, possibly containing its nuclear ambitions and making the country more pliable to the West.
As has been noted, Saudi Arabia's manipulation of the oil price has twice targeted Russia. This time, the effects of a low price have hit Moscow especially hard due to sanctions already in place combined with the low ruble.
Will it work?
Whether one is a conspiracy theorist or a market theorist, in explaining the oil price drop, it really matters little, for the effect is surely more important than the cause. Putin has already shown himself to be a master player in the chess game of energy politics, so the suggestion that sub-$60 oil will crush the Russian leader has to be met with a healthy degree of skepticism
Moscow's decision on Dec. 1 to drop the $45-billion South Stream natural gas pipeline project in favor of a new pipeline deal with Turkey shows Putin's willingness to circumvent European partners to continue deliveries of natural gas to European countries that depend heavily on Russia for its energy requirements. The deal also puts Turkey squarely in the Russian energy camp at a time when Russia has been alienated by the West.
Of course, the Russian dalliance with China is a key part of Putin's great Eastern pivot that will keep stoking demand for Russian gas even as the Saudis and OPEC, perhaps with US collusion, keep pumping to hold down the price.