Saudis hint at $50-a-barrel oil; Iran may be one reason

Saudi Arabia, which benefited immensely from record oil prices last year, has sent signals in the past two weeks that it is committed to keeping oil at around $50 a barrel -- down $27 from the summer peak that shook consumers across the developed world.

The indications came in typically cryptic fashion for the oil-rich kingdom. In Tokyo last week, Saudi Oil Minister Ali al-Naimi said Saudi Arabia's policy was to maintain "moderate prices." The previous week, on a stop in New Delhi, he effectively put his veto on an emergency meeting of the Organization of the Petroleum Exporting Countries to prop up prices after oil briefly dropped below $50 a barrel, the lowest level in nearly two years.

The events that propelled oil prices above $77 a barrel in July were beyond any single producer's control. Still, Saudi Arabia, by far the largest OPEC producer and the country that usually sets the cartel's agenda, is seeking to avoid a repeat of the dramatic run-up in prices while trying to put a floor beneath them.

Other motives also seem to be at work, including the Saudis' desire to restrain the ambitions of Iran.

Nowhere was last summer's spike in oil prices felt more profoundly than in the United States. As gasoline rose above $3 a gallon, consumers cut spending elsewhere, tamping down profits in retail, travel and other industries. U.S. automakers were devastated as consumers fled from large vehicles to smaller ones, historically the specialty of the Japanese; Ford on Thursday announced that 2006 had been its worst year.

The recent slide back to $50 a barrel -- which translates to about $2 for a gallon of gasoline in the United States -- has eased the pressure on the domestic economy, quieting talk that oil prices and the declining housing market would lead to a recession.

The Saudis appear to be relearning the fact that painfully high energy prices take a profound toll on the global economy, which reduces demand for oil.

How much influence the United States has exerted is an open question. Vice President Dick Cheney met with Saudi King Abdullah in Riyadh in November, but his office would not say if oil was discussed. The White House has been supportive of Saudi energy policy, and President Bush and his father are close with Prince Bandar bin Sultan, the national-security minister and former ambassador to the United States.

Although Saudi officials say their oil policy is based on market considerations and not political ones, the November meeting led to renewed speculation that the kingdom might be tempted to dry out Iran's ambitions by pushing oil prices down. Prices already have been falling because of mild weather and slowing demand.

Prices at $50 to $55 a barrel are about right for the Saudis, according to Saudi energy officials -- not too high to hurt the global economy, not too low to hurt their economy. Last year's record highs meant that the growth in global oil demand slowed to 1 percent in 2006, compared with a 4 percent increase at its peak in 2004.

But 2006 was not the first reminder for the Saudis that too-high prices can backfire. The oil shocks of the 1970s and '80s also set off a scramble for gas-sipping cars and a brief push to wean the West from its oil dependency.

In recent months, the higher prices have rekindled America's quest for alternatives and propelled energy security to the top of the agenda in the United States and Europe.

Even Bush, who began his presidency seeking to increase domestic oil production, called for cuts in gasoline consumption over the next decade in last week's State of the Union address.

High prices also have emboldened rivals within OPEC, among them Iran and Venezuela, which have used their oil revenue to prop up their governments and export their more radical agendas. Saudi Arabia has worked cooperatively with Iran since the late 1990s, when oil producers were panicked by the decline of prices to around $10 a barrel. More recently, Iran has favored rising prices over the moderation that Saudi Arabia seeks. Venezuela also tends to favor higher prices but wields less political influence.

"High prices are not in the interest of Saudi Arabia," said Sadek Boussena, a former OPEC president from Algeria. "We've all seen what $70 does: It attracts alternatives, it reduces demand. On the other hand, I don't think the Saudis want oil below $50. They need the revenue."

There is no scientific formula for setting oil prices. In the 1980s, the market settled on around $18 a barrel. In the 1990s, it was ratcheted up to $22 to $25 a barrel. Recently, oil producers have realized they can charge twice that amount without significantly stifling the global economy, although consuming nations still complain that the price is too high.

Naimi, the Saudi oil minister, is rarely explicit about his plans. His every word is dissected by legions of analysts for the slightest hint of an inflection in policy.

Sometimes, the uncertainty gives rise to more conspiratorial theories. Oil traders have been buzzing in recent weeks about whether Saudi Arabia was actively seeking to depress oil markets in hopes of crippling Iran's economy, as a Saudi analyst -- albeit not one from the government -- suggested in an opinion article in The Washington Post late last year. The Saudis quickly dismissed the claim.

"It is difficult to work out what the Saudis really want, since they never say things explicitly," said Leo Drollas, chief economist at the Center for Global Energy Studies, a London-based research group founded by Sheik Ahmed Zaki Yamani, a former Saudi oil minister.

Sometimes, he said, "you have to read between the lines."