Oil prices could spike, Saudi warns

U.S. News
Marianne Lavelle
June 20, 2006

World oil prices could double or triple over the current painful $70-per-barrel level if diplomacy failed and military conflict broke out over Iran's nuclear ambitions, Saudi Ambassador Prince Turki al-Faisal warned this morning.

"We don't know" what will happen if the United States chooses a military option in Iran, al-Faisal said, but "if there is military conflict, if bombs are dropped, ships are blown up, oil facilities on our side of the gulf are targeted . . . just the idea of somebody firing a missile at an installation somewhere would shoot up the price of oil astronomically." In such a scenario, he said, Saudi Arabia "hopefully would defend our oil installations as best as we can and seek an immediate resolution," but the risks would be grave. "Not just our installations, but the whole gulf would become an inferno of exploding fuel tanks and shut-up facilities," al-Faisal said.

Al-Faisal, who has served as Washington-based ambassador to the Saudi kingdom since last year, is the son of former Saudi King Faisal. Although he has warned against military conflict in Iran previously, his remarks today were his most specific yet on the consequences of an outbreak of violence.

Speaking this morning in Washington, D.C., at the U.S. Energy Association, an organization of public and private energy companies and agencies, Al-Faisal said that Saudi analysts estimate that a $20-to-$30 premium of today's world oil price is a result of fear in the marketplace over global political problems. When asked what would be the most important foreign policy step the United States could take to address these issues, Al-Faisal said, "I think they can fix the Middle East problem, fix the Iraqi problem, and carry through with the diplomatic process on the Iranian problem. All of these things are doable." He added that "the entire world community" must become more engaged, "but the United States has the leading role on all these issues."

Regarding Iraq, Al-Faisal said that his country supports President Bush's current policy of working with the newly formed Iraqi government until it requests that troops withdraw. "Our position in Saudi Arabia is that the U.S. came into Iraq uninvited and they should not leave uninvited.

"Simply to pack up and leave, I think, would be disastrous, not just for Iraq, but for the area," he said.

He encouraged the United States to continue forward with the U.N. Security Council and other nations on the diplomatic proposal to address Iran's goal to move forward with nuclear fuel enrichment. "The Iranians have indicated that they are interested in engaging with the U.N. Security Council on that subject. What we encourage is that process should continue. We think military conflict would be counterproductive . . . definitely, we're talking about $70-a-barrel oil–you'd see that perhaps doubled or tripled as the result of conflict."