Islamic Unity, Oil Clout: A One-Two Punch

The air of reconciliation at last week's world Islamic conference in Tehran should serve as a wake-up call for the West. The show of Islamic unity - led by Saudi Arabia, leader of the world's Sunni Muslims, and Iran, leader of the world's Shiite Muslims - may have direct implications for American economic and national security interests that are not being adequately considered.

The various kings, prime ministers, and presidents in attendance were ostensibly mulling over how to transform Islam from a fractured theological system into a unified force able to counter increasingly demonic portrayals of the faith and the perceived "Israelization" of US foreign policy. They may also, however, have been meeting to develop more effective strategies for leveraging control over their 73 percent of the world's proven and recoverable oil and gas reserves. The goal: a more meaningful petro-political axis.

What avenues might limit (or even eliminate) the US's influence over the region's flow of low-cost oil? After all, cheap energy is vital to a key ingredient for healthy American and European economies - cheap money.

Until now, Persian Gulf states have shown little interest in any greater geo-strategic consideration than selfish maneuvering for market share. In fact, oil's supply-demand equation has kept prices declining on an inflation-adjusted basis (excepting the Gulf War) since Saudi King Faisal imposed the 1973 oil embargo. Saudi Arabia recently asked for and received higher OPEC output ceilings to ward off upward price pressures from Asian energy demands - pressures that would be unwelcome in Washington's interest rate-setting policy community.

But as dovish as Saudi King Fahd has been toward US interests in the region, his more Islamic-minded heir apparent, Crown Prince Abdullah (who headed the Saudi delegation in Tehran), may not follow suit. Not since King Faisal has there been a Saudi leader as committed to Bedouin traditions, with a commensurate distaste for Western secularism.

Having watched his brothers, cousins, and nephews squander the nation's oil wealth on Spanish villas and London casinos, Abdullah might be readying policies that emphasize one critical dimension of the kingdom's oil power: keeping it in the ground as a lever to influence Western interest rates and to counter other Western influences that undermine his power.

But unilateral production moves can have at most a cursory effect on long-term oil prices. Hence the need to pursue strategic alliances with the likes of Iran, and to encourage Iran's reconciliation moves toward Iraq (owner of the world's second largest reserves).

To put a revitalized OPEC-like cartel into perspective, consider that of the 1 trillion barrels of proven reserves in the world today, the six largest oil-producing nations, all Islamic (Saudi Arabia, Iraq, the UAE, Kuwait, Iran, and Azerbaijan), can pump their 730 billion barrels for 91 years on average at current production rates and rising consumption rates of 2-3 percent per annum. The non-Islamic world, led by Venezuela, Mexico, and Russia, can pump for at most 30 years.

America, the world's second largest producer, has reserves that will last only another 10 years. Western high-tech drilling and extraction technologies will help stabilize prices, but at much higher levels if the revitalized cartel moves in unison to cut production - or even holds production steady while rising global consumption nudges oil prices higher.

AMERICA can't afford to ignore the momentum of the budding Saudi-Iranian axis, or the rising tide of Islamic unity, any longer. Crown Prince Abdullah may be clever enough to form a political marriage of convenience with his Shia nemesis in order to reduce Washington's influence over the reliability and price of his oil. Iranian President Mohammed Khatami may be clever enough to pursue Abdullah's overture in order to revive his economy and placate his radicals by quietly working with Saudi Arabia to reduce America's role and visibility in the region.

Whether America is clever enough to engage a rightist Saudi Arabia and a centrist Iran without compromising its heretofore principled positions on democracy, human rights, and terrorism, and at the same time prevent oil-price volatility and its impact on the cost of US money, remains to be seen.

* Mansoor Ijaz is chairman of Crescent Investment Management, a New York investment firm that advises several OPEC member nations in the Persian Gulf.