There’s a mountain of economic research that suggests predatory pricing, the alleged sin of Standard Oil way back in the Rockefeller “robber baron” days more than a century ago, really doesn’t work, as the predator won’t recoup monopoly gains to make up the loss of profit during the period of predation—the more so the longer the period of price cutting takes. The Saudis likely know this, which suggests their decision to maintain production and let oil prices fall is being done for different motives (though if it squeezes and retards the American oil boom, that would be a bonus).
The very shrewd Conrad Black thinks the Saudis are collaborating in the crash of oil because this is their most effective way of fighting the weakness of the West in confronting Iran’s nuclear ambitions:
Saudi Arabia has resigned itself to the fact that neither its oft-demonstrated ability to play the periodic U.S. resolve to reduce its dependence on foreign oil like a yo-yo by price-cutting until the impulse of self-discipline passes, nor the agitation of the environmentalists for restrained oil production, will work again. . . a Saudi move on this scale, with the resulting self-inflicted reduction in their income, makes no sense for the marginal impact it will have on American future production and imports; it is a geopolitical move targeted much closer to home. . .
Saudi Arabia is trying to discourage the use of Iranian and Russian oil revenues to prop up the blood-stained and beleaguered Assad regime in Damascus, to finance Iran’s nuclear military program, and to incite the continuing outrages of Hezbollah and Hamas in Lebanon and the Palestinian Territories against Israel. The exotic community of interest that has suddenly arisen between the historically Jew-baiting Saudis and the Jewish state is because the countries in the area fear, with good reason as far as can be discerned, that the UN Security Council members, plus Germany, may be on the verge of acquiescing in Iran’s arrival as a threshold nuclear military power. The oil-price weapon, in the face of the terminal enfeeblement of the Obama administration, is the last recourse before the Saudis and Turks, whatever their autocues of racist rhetoric, invite Israel to smash the Iranian nuclear program from the air.
It is perfectly indicative of the scramble that ensues when a mighty power like the United States withdraws, fatigued but undefeated, from much of the world, that Saudi Arabia, a joint venture between the nomadic and medieval House of Saud and the Wahhabi establishment that propagates jihadism with Saudi oil revenues, makes common cause with Israel in a way that inadvertently relieves much of the Russian pressure on Ukraine, which was not an objective in Saudi calculations at all. From the Western standpoint, this is a lucky bounce of the political football.
This is going to get more interesting before it’s over.