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One Word: Obama's Nightmare Scenario, and Why It Hasn't Happened (Yet)

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Poor Barack Obama. If it weren't for all these geopolitical crises, he'd have some fairly decent-sounding news to spin.

U.S. retail sales rose 1% in February, led by a 2.3% rise in auto sales. That's the eighth straight month of increased retail sales.

Meanwhile, the unemployment rate hit a two-year low at 8.9%, down nearly a point in only three months. Some 200,000 new jobs were added last month.

Even the Obama White House wouldn't say the economy is great, even though it's a far cry from the Depression the country was sliding into when Obama became president. But the gains can be washed away -- slowly, or all at once -- by rising oil prices. It all depends on how high they go, and how long they stay up.


After Saudi troops arrived, Bahrain declared martial law in the island kingdom, home to the U.S. Navy's 5th Fleet, which guarantees the oil flow and counters Iran.

One very large key, perhaps the largest, to Obama's presidency lies in the Gulf. In particular, in Saudi Arabia. If Libyan oil is off the market, Saudi Arabia accounts for 70% of OPEC spare oil production capacity.

I've been hearing various apocalyptic scenarios about the domestic economy since the 1970s.

And the name of the movie would have to be Apocalypse Not Now.

But there's one thing that my old friend Tom Hayden told me 30 years or so ago that I always remember. It's one word.

"Riyadh."

All the other apocalyptic scenarios have come and gone, with America left more or less intact, if not what it once was. But that's only true so long as the oil flows, and so long as it flows at arguably affordable prices.

Even the devastation of Japan, a global economic powerhouse which in some ways is the most modern country in the world, is not as threatening to America -- and to Obama's re-election -- as the potential fall of the Gulf oil system of which Riyadh, Saudi Arabia's capital, is the center.

The biggest political problem on the horizon for Obama is increased oil prices due to the heightened geopolitical risk premium caused by the Arab revolt. Economists say this is already shaving off likely economic growth. Should prices rise higher, the recovery will be threatened. Should oil prices shoot up dramatically on a major geopolitical event or events in the core Middle Eastern oil producing sector, the economy could plummet back into recession.

Many have forecast the fall of the House of Saud and it's still standing at the forefront of Saudi Arabia's ultra-conservative society.

Last Friday's much touted, Facebook-driven "Day of Rage" in Saudi Arabia fizzled. Why? The answer reminds me of that old Warren Zevon song, "Lawyers, Guns and Money."

* The Saudi clerics all declared demonstrations to be against Islamic law.

* The Saudi security forces blanketed Riyadh and most of the country.

* And the king had already promised nearly $40 billion in new social subsidies.

Taken as a whole, the power of lawyers, guns, and money turned the power of social media into so many dispersed electrons.

Did Obama say anything about the suppression of protest in Saudi Arabia? Of course not. Not even when a few protesters the night before the flopped Day of Rage got themselves shot in the eastern part of the country, not far from the oil fields. Which probably helped drive home the preferred point that taking part in the Friday protests was an unwise idea.


Saudi troops moved across the King Fahd Causeway into Bahrain on Monday to secure strategic locations.

Saudi Arabia's leaders had already expressed their displeasure with the Obama Administration's rhetorical support, incoherent though it was at times, for the protesters in Egypt and Tunisia, whose deposed president now lives in Saudi Arabia. They were particularly upset about the abandonment of Hosni Mubarak. They could see the wave coming.

Obama and the America we know is in the vicinity of a world of hurt. Obama is now dealing with a multiplicity of factors in multiple venues. The more uncertainty introduced into a situation, the more unstable it becomes.

Tunisia and Egypt were the opening act, even in their own revolutions, which are still in early stages. Libya is a huge sideshow, dramatic and entertaining, but not central. Which illustrates the danger, because even with only 2% of the world's oil, Libya sends shudders through the whole system.


There was a massive security presence Friday in Riyadh, capital of Saudi Arabia.

Center stage, of course, is the Persian Gulf, which the U.S. Navy and many of the people who live there prefer to call the Arabian Gulf. We're relying on Saudi Arabia to provide stability in the global oil market, but Saudi Arabia itself is in danger of becoming unstable. That's why the king is doling out some $40 billion to students and the poor and why he's re-shuffling his cabinet.

Of course, Saudi Arabia is the perhaps the ultimate double-edge sword for America. It is the single most important provider of our oil fix, but it's also the biggest financier of jihadism. It's a country that embraces the West economically but, at least officially, reviles it through its dominant form of Islam.

It can directly stabilize the global economy, as we see now, with the promise of greater output (Saudi Aramco says its normal 9 million barrels a day can be upped to 12.5 million, though some say its peak oil has already passed), and indirectly disrupt it through its financing of jihadism.

Like Obama, the oil autocracies are playing for time, with the rich Gulf states planning to subsidize the poorer ones: Bahrain, home of our 5th Fleet, and Oman, on the other side of the Strait of Hormuz from Iran, the choke point through which nearly half the world's oil shipped by tanker must pass.

Protests continue in Oman, even though Sultan Qaboos has sacked most of the cabinet, replaced the national police chief, and promised more social spending.

Last week, the rich members of the Gulf Cooperation Council -- Saudi Arabia, the United Arab Emirates, Kuwait, Qatar (home to Al Jazeera), Oman, and Bahrain -- authorized a $20 billion fund to try to stabilize the poorer members, Bahrain and Oman. The decision was taken during a GCC foreign ministers meeting in the Saudi Arabian capital, Riyadh, on Thursday. On Friday, the Saudi Day of Rage was successfully suppressed.

On Monday, after more massive protests in Bahrain that shut down the financial sector, Saudi troops moved across the 15-mile King Fahd Causeway connecting the two countries to secure strategic facilities.

It was a surprise when it happened, in a new year suddenly full of cascading surprises, but hardly a shock. After all, when Saudi King Abdullah returned home in February after three months of medical treatment and convalescence in New York and Morocco, it was the king of Bahrain who flew that very day to Riyadh to welcome him back and consult on the Bahraini crisis.


Many protesters have been hospitalized in the last few days in Bahrain, many suffering from unusually severe effects after being tear-gassed.

It's a crazy situation, and because of our outmoded energy economy we've placed ourselves at the mercy of the sort of events we haven't controlled very well in the past, from the Arab oil embargo of the '70s on, and may well not be able to control at all in the future.

Can the Saudis control their own future? Repression never really works, not in the long run. Especially not with people who've had even a taste of freedom.

Which is the case in Bahrain, if not in Saudi Arabia itself. But even there, a growing and youthful population -- nearly half under 18 -- may prove less amenable to monarchy and theocracy than its elders. Especially with structurally high unemployment and an economy that remains relentlessly geared to oil.

Would the Saudi royals in the end fire on their own people for more than effect? Or would they decamp for their homes in London, Paris, New York, and California? I would guess the latter. Which is easy enough for me to say.

In any event, that eventuality, if it ever occurs, is probably well down the line. In the meantime, there's plenty of potential crises much closer at hand. And that's why Barack Obama has to be hoping that, one way or another -- be it through autocracy, democracy, or some jury-rigged combination in between -- the Gulf oil flow continues, and at arguably reasonable prices.

To be clear. Why isn't Obama out front criticizing the suppression of protest in Saudi Arabia, not to mention a Saudi military incursion in Bahrain that may well further inflame the situation in the home of the Navy's 5th Fleet?

Or at least as out front as he was on Egypt?

One word. Oil. Which in the American geopolitics of this moment, as it was some 30 years ago, is synonymous with Riyadh.

If we were all driving around in electric cars or other vehicles with alternative fuels, things would be very different.

You can check things during the day on my site, New West Notes.