In Saudis risk playing with fire in shale-price showdown as crude crashes, Ambrose Evans-Pritchard argues that
Saudi Arabia and the core Opec states are taking an immense political gamble by letting crude oil prices crash to $66 a barrel, if their aim is to shake out the weakest shale producers in the US. A deep slump in prices might equally heighten geostrategic turmoil across the broader Middle East and boomerang against the Gulf’s petro-sheikhdoms before it inflicts a knock-out blow on US rivals.
Curiously, and perhaps paradoxically, Middle East unrest is historically associated with high oil prices--indeed, price shocks--rather than low oil prices.
For example, the Arab-Israeli War in 1973 followed the peaking of US oil production and the loss of global spare capacity, leading to the very first modern oil price spike. Angola's civil war also dates from this period.
The Second Oil Shock of 1980 was associated with the Iran-Iraq War and the overthrow of Shah Pahlavi in 1979, again in the context of low spare oil production capacity.
This was also true in the Fourth Oil Shock associated with the Arab Spring in 2011. Here, too, we see an oil price spike associated with revolution in Libya, Tunisia, Syria and Egypt.
Unrest in Nigeria, always simmering, came to a boil after 2006, when oil prices were rising quickly. Even Wikipedia makes the connection, noting that
Competition for oil wealth has fueled violence between many ethnic groups, causing the militarization of nearly the entire region by ethnic militia groups as well as Nigerian military and police forces.
Nor did Iraq did not disintegrate when oil prices were low. Just the opposite. Indeed, most of the ISIS (ISIL) advances came around June and July 2014, when oil prices were still high.
The possible exceptions to this rule include Algeria, which saw a civil war start in 1991, and Iraq's invasion of Kuwait. (There was also a brief oil price spike around that time associated with the invasion.) Nevertheless, most Arab unrest has historically been associated with oil price spikes.
One would think that a country's population becomes restive when government transfers are lacking, when services are being cut and pensions trimmed. But perhaps a subset of the population mobilizes when they perceive that oil wealth is not being shared, when food and fuel prices spike, and when they feel it worthwhile to try to seize oil assets and revenues by force. These latter phenomena occur when oil prices are high. Thus, the driver of unrest may not be reduced social services, but rather the prospect of a prize worth fighting for.
Might Saudi Arabia be risking regional turmoil by promoting low oil prices? Perhaps. But the historical record suggests that high oil prices are the greater threat.