The 2011 profits of instability

By Dave Anderson:

A "reasonable" amount of localized political instability in major oil-exporting nations is an extremely profitable situation for relatively stable oil exporters.  Saudi Arabia, among other, oil exporting nations is seeing the value of their oil exports increase dramatically as the civil war in Libya has taken a little less than 1% of the global supply of daily crude oil off the market at a time when supplies are tight. 

Stuart Saniford at the Oil Drum has taken a look at whether or not the Saudis are releasing excess capcity to make up for the short-fall.  They are not, and he speculates on a very plausible reason:

Saudi production has increased to around 9mbd, but the timing makes it clear this has nothing to do with Libya....

The Saudis were slowly increasing their production from last fall through February, presumably in response to growing global demand and rising prices.  But then, in March, when Libyan production went into freefall, they put on the brakes and did almost nothing to make up for the shortage....

my take is that the failure to increase production to compensate for Libya is deliberate.  We can only speculate, but my guess is that, having watched how the west has helped to ease Mubarak and Ben-Ali out of power and is intervening in Libya to the same end, the Saudi regime is in no mood to care about our desire for more oil. Instead, they are very much in the mood to build as large a war chest as possible with which to appease their own population, strengthen their defense measures, etc.

This line of reasoning leads one to an obvious explanation as to why the United States has said nothing of the Saudi intervention in Bahrain to crush Shi'ite protests against the minority Sunni ruling regime.  The Saudis are sitting on excess capacity to generate increased pricing and geo-political power, and they can threaten to have "technical" problems that would take off another half a million or more barrels per day.  The Saudis and any other major oil exporter with significant cheap to produce reserve capacity can and are profiting from instability as those profits allow them to pay off their populations and avoid the bread/staples price inflation that provided Tunisian and Egyptian protest sub-structure.