Middle East Strategy at Harvard

From Gal Luft

There is so much blame to go around in the wake of the financial crisis that there is no wonder OPEC’s name shows up high in the list of culprits. After all, soaring oil prices and loss of wealth in 2008 to the tune of $1.2-$1.9 billion each and every working day, depending on the price of crude, not only helped pop the U.S. mortgage bubble but have also helped create the economic conditions that brought the U.S. economy to its current dire straits.

I don’t like the oil cartel and have even been called “the most hated man in Riyadh.” My positions on OPEC and its methodical price manipulation and looting of the world’s poor are well documented. But alleging that OPEC by some grand design brought America to the abyss and then pushed her over the cliff or, worse, concocted a vast conspiracy to impoverish millions of middle-class Americans seems like one bridge too far, especially in light of the fact that OPEC countries themselves are among the biggest casualties of the crisis. Oil prices have already fallen to $88 from their record $147 in July.

Since the beginning of the crisis, the Saudi stock market, the largest in the Arab world, lost more than 17 percent of its value. Qatar lost 19 percent, and Dubai’s exchange shed a quarter of its value in just four days of trading. Due to their relative insulation, Iranian and Venezuelan stocks were almost unscathed by the meltdown, but make no mistake: Iran and Venezuela are likely to suffer greatly from the current downturn. The IMF recently determined that oil prices must remain at $90-$95 for Iran and Venezuela to be able to balance their books. If the price of oil falls to $75-$80 a barrel, Caracas and Tehran will have to cut government subsidies and shave government spending. At such price levels the Iranian economy alone will lose $50 billion a year, which amounts to a per capita loss of $700-$800.

Furthermore, sovereign wealth funds owned by Persian Gulf governments are heavily invested in crumbling financial institutions, and their losses are monumental. Only last July, Abu Dhabi Investment Council caused a stir when it bought the Chrysler building in New York City for $800 million. Considering the desolation of New York’s financial district and the slumping U.S. real estate sector, this no longer looks like such a great deal.

So if OPEC indeed has a grand economic warfare plan, as of this writing it proves to be a spectacular failure. No doubt most OPEC governments do not have America’s best interests in mind, but their correlation of interest does not imply causality. The problem with laying the blame for our economic calamity on OPEC is that it hides the plain truth that this crisis is about our greed, not theirs. Any attempt to masquerade this inconvenient truth will only obstruct our lesson-learning process and therefore undermine our road to recovery. As Pogo once said “we have met the enemy and he is us.”