Is Oily Econo-Politics Behind Saudis’ Crude Canadian Diplomacy?

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Written by Whitney Webb; Originally appeared at MintPress

In a near repeat of Saudi Arabia’s feud with Qatar last year, the diplomatic spat between the Saudis and the Canadian government seems to have spiralled out of control after it began last Friday. Apparently beginning as a result of the Canadian Foreign Ministry’s decision to criticize via Twitter the Saudi government’s arrest of the sister of detained Saudi activist Raif Badawi, the days since have seen the Saudis expel the Canadian ambassador, suspend flights to Canada, recall around 15,000 Saudi students studying abroad, and freeze new trade and investment in Canada, among other measures.

The most disturbing exchange between the two countries took place on Monday when a Saudi state-sponsored Twitter account tweeted a graphic appearing to show an Air Canada airliner heading toward the Toronto skyline in a way similar to the September 11th attacks, in a gesture that seemed to imply that the Saudis would target Canada for its “interference” in the kingdom’s internal affairs.

Then, early Wednesday, Saudi resolve to punish Canada for its criticism of the kingdom’s treatment of domestic dissenters and activists was again made clear after the Saudi central bank and state-managed pension funds ordered their foreign-based asset managers to liquidate their Canadian equities, bonds and cash holdings “no matter the cost.” Those funds were estimated by the Financial Times at around $100 billion.

That announcement was then followed by a statement from Saudi foreign minister Adel Al-Jubeir, who asserted that “What Canada did was unacceptable […] There is no need for mediation, Canada knows what it needs to do, it must change its policies, ways with The Kingdom.” He then ominously warned that the “Saudis are still weighing other measures to take against Canada.”

If Riyadh’s on-going squabble with Qatar is any indication, the Saudis are likely to continue to flexing their political and economic muscle in an effort to push the Canadian government to capitulate, even if it results in the Saudis pushing truly bizarre countermeasures.

Yet, while the Saudis themselves and much of the media coverage have painted the increasingly bizarre stand-off as a result of “human rights” concerns, it is unlikely that Saudi Arabia’s offense at a single tweet from the Canadian Foreign Ministry is to blame for the rapid decay in bilateral relations.

Indeed, some have speculated that the fierce response from the Saudis is intended to serve as a warning to any other government that would seek to criticize Saudi policy, particularly those policies ordered by the kingdom’s “reformer,” Crown Prince Muhammad bin Salman (MBS). If this is the case, the high price Canada is paying for a single tweet critical of the Saudi government is a clear sign to other nations that the Saudi government will not tolerate dissent in any form, whether from its own people or from other nations.

Is oil lurking under the Saudis’ thin skin?

Another possible reason for the spat, however, is that the tweet from Canada’s Foreign Ministry offered MBS an opening to go after its top competitor in the U.S. oil market — one of the most important oil markets, given that the U.S. is the second largest importer of crude oil in the world and the U.S. military is the largest consumer of oil in the entire world.

Despite forging close ties with the Trump administration and their historical cooperation with the U.S. through the petrodollar system, the Saudis were displaced by the Canadians starting in the late 1990s as the top exporter of crude oil to the United States. Since then, the gulf has widened largely thanks tothe fast growth of Canadian oil imports — which now account for more than half of all U.S. crude imports, while U.S. imports of Saudi crude have dropped to 8.5 percent of the total.

This may explain why the Saudis have targeted the Canadian economy in particular as the current diplomatic crisis has worsened. Indeed, rejections of Canadian wheat exports by the Saudis is expected to cost the Canadian of region of Alberta alone over $132 million a year, weakening Alberta’s already struggling agricultural sector. Canada’s total exports to Saudi Arabia, now under threat, total on average $1.45 billion annually. Even the Saudi decision to remove 15,000 Saudi students from Canadian universities is expected to remove around $2 billion in investment from the Canadian economy.

Furthermore, restrictions on future investment and the removal of some $100 billion in Saudi money from Canada — in addition to impacting Canada’s economy directly — may also spook investors from Saudi-allied countries, particularly considering how Saudi has handled its dispute with Qatar. This may be a large concern giving the number of Middle Eastern and North African countries that have backedthe Saudis in their current spat with Canada.

Thus, the already in-place measures the Saudis have levied against Canada are likely to destabilize the Canadian economy to some extent though the Saudi’s recent promises that more is to come may increase that effect in the days and weeks ahead.

Another consequence of the rift could target Canadian oil exports directly. If Canada responds to the rift with the Saudis by halting the relatively small amount of Saudi oil it currently imports, Canadian oil will be used to meet that demand. While such a move is of no great consequence for Canada, it would mean that an estimated 31 million barrels of crude would be used domestically and not exported to the United States or elsewhere on an annual basis, conveniently offering the Saudis an opportunity to replace that deficit by exporting more to the United States.

However, 31 million barrels of crude oil is not very significant in terms of Canada’s and the Saudi’s total oil exports. The more likely reason for a Saudi effort to hamper the Canadian economy and its oil exports has to do with the larger reshuffle in the oil economy resulting from the U.S. government’s efforts to stop Iranian oil exports.

Indeed, as the U.S. government’s main plan to offset the void that would be left by an end to international purchases of Iranian oil has been its push to force the Saudis to dramatically increase oil production to a record 11 million barrels a day in order to meet the existing demand.

Yet not all has gone as planned. First, some countries, like Turkey, announced that they would continue to import Iranian crude despite the threat of U.S. sanctions. Complicating matters further is the prospect that the U.S. would “soften” its demand that countries halt Iranian oil imports by the November 4th deadline. Then, the most troubling news of all, from the Saudi perspective, came last Friday when the world’s largest oil importer, China, announced that it plans to continue importing Iranian oil, a major boon to Iran given that China accounts for 35 percent of Iranian oil purchases. Furthermore, China announced earlier this year in May that it would be severely reducing Saudi oil imports.

With the gap caused by reduced Iranian oil exports to fill likely smaller than it had thought, the Saudis need buyers for their increased oil production and, if all else fails, it is likely that they will expect the default buyer to be the United States, given that Washington pushed for the production increase in the first place. Yet, with U.S. oil purchases from Canada at an all-time high, there isn’t much room for an increase in the Saudi market-share — that is, unless Canadian oil currently being exported were to be redirected for domestic Canadian use, thus offering less of a challenge to Saudi oil exports.

Perhaps then it is no coincidence then that the Chinese announcement preceded the Saudi-Canadian spat by a matter of hours.

Saudi history of oil-spank and troubles on the horizon

If this is the case, it certainly wouldn’t be the first time that Saudi diplomatic attacks have been motivated by fossil-fuel markets. In fact, the Saudis’ ongoing dispute with Qatar was ultimately caused by Qatar’s lifting of a moratorium on developing the world’s largest natural gas field it shares with Iran and its related normalization of diplomatic ties with Iran’s government in light of their shared interests in the gas field.

Furthermore, Saudi Arabia has a history of using unconventional means to damage the economies of its oil rivals — though this has normally occurredthrough the Saudis’ manipulation of oil prices, enabled by their privileged position as a top oil producer. Past efforts to this effect have been successful in several cases, such as when the Saudi-led price war against Russia in the 1990s led Russia to default on its debt in 1998 and thus neutralized what the Saudis had perceived as a major threat to its oil supremacy at the time.

The Saudis, with prompting from the U.S., attempted a similar scheme to squeeze out higher-cost and smaller producers beginning in 2014, and largely succeeded in weakening smaller countries with oil-dependent economies, such as Venezuela and Ecuador.

With the oil market now facing several unknowns — from the effect of looming U.S.-backed Iran sanctions to the U.S.-China trade war — Saudi Arabia is likely looking for a way to maintain its market supremacy. While Canada may have offended Saudi leaders with a recent tweet, it seems very possible that the Saudis saw the tweet as an opening to justify economic attacks of increasing severity against a major oil-market rival.

Now, with Saudi foreign cash reserves still very low, reforms aimed at diversifying its economy moving at a snail’s pace, and warnings that the kingdom could face bankruptcy in less than two years, even small fluctuations in the oil market — along with growing domestic dissent — threaten to derail the kingdom or loosen the grip of the ruling family. It is most likely that Canada has reminded the Saudis of both of their weaknesses — economic and political — at a time when the Kingdom finds itself faces an uncomfortable and perhaps unforgiving future.

Top Photo | A placard with the Canadian flag rests on the ground covered in oil as demonstrators protest against the Keystone XL Pipeline. Nam Y. Huh | AP

Whitney Webb is a staff writer for MintPress News and a contributor to Ben Swann’s Truth in Media. Her work has appeared on Global Research, the Ron Paul Institute and 21st Century Wire, among others. She has also made radio and TV appearances on RT and Sputnik. She currently lives with her family in southern Chile.

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  • Concrete Mike

    Saudi can cut oil exports to canada if they want…were not extracting oil at full capacity, not even close.

    One problem we have is a lack of pipelines, and a reluctance to build more. The saudis have the money to corrupt enviro groups to stop these pipelines, quebec and canada east is an example. Alot of first nations dont want pipelines either, and they are important stakeholders and they must be listened to.

    Were already broke and in debt, so bring it saudis. At least I wont owe anything to you fake ass muslims

  • Brother Thomas

    Great background and analysis. Hope Canada stands her ground (though not much of a stand), and the Saudis meet the end they richly deserve by going broke.

  • Snowglobe

    …”That announcement was then followed by a statement from Saudi foreign minister Adel Al-Jubeir, who asserted that “What Canada did was unacceptable […] There is no need for mediation, Canada knows what it needs to do, it must change its policies, ways with The Kingdom.”

    What Canada DID was unacceptable…

    Methinks that there is more to the story, and that it is our own government that is not telling it to us.

    • Brother Thomas

      You flatter yourself if you think Canada is able to physically DO anything on the international stage independent of the US. All it can do, in increasing rare moments, is stake a moral position,

      • Snowglobe

        Oh no, I was not thinking of something done physically. I was thinking of something more treacherous. Something more insidious and backstabbing. We are under the shadow of the Royal’s after all. Increasingly Canada is having fewer moments of moral high ground. We have the same den of thieves running us as every other country. I doubt if even the US would turn it’s back on us at the moment.

        • Brother Thomas

          The problem is that the conservatives would march right back into office with someone like Harper or a loathsome Trump-like fool like O’Leary.

          • Snowglobe

            Agreed! Canada needs to be turned on it’s head and be given a big shake too. The old guard has corrupted itself, and they need to be stripped away. Back to the basics would be a good start.

      • Concrete Mike

        We said no to iraq war…what did your country do? I remember the americans were not pleased about it either.

        • Brother Thomas

          That was really good. No to Vietnam as well.

          • Concrete Mike

            We have a strong jewish lobby, an even stronger ukronazi faction.alot of them in manitoba.

            Im out east never seen these people but they are annoying and dont represent us

  • Gary Sellars

    Dirty filthy camel-rapers… How I would love to see a few 500kT air-bursts over Riyadh and Najd.

  • S Melanson

    I think the author has overblown the effects on the Canadian economy. Much of what has been done are one offs and we can shoulder it. The trade of 1.5 billion annually with KSA is a pittance and will cause little disruption to our economy even if brought to zero. The arms deal of several billion may be costly, but how they will be used is destabilizing and immoral so we can shoulder that too.

    • Concrete Mike

      I agree with you, the wheat ban may cause some trouble to our friends out west, but im sure they could sell elsewhere if our product is good.

  • Barba_Papa

    There may be other reasons, but with its own appalling human rights record and the war in Yemen, I wouldn’t be surprised if Canada is being made into an example. It’s a relatively unimportant country, with no allies that will stand up for it. If an EU country had been singled out, chances were that the whole EU block would respond. So no allies to stand up for Canada, yet the message gets delivered to other Western countries. Don’t say anything bad about us and be our friend, or join Canada and lose out on the goodies.