In a lot of ways, Saudi Arabia has had a lousy six weeks.  Revolutions, protests and general unrest have spread across the region from far-away Tunisia to way-too-close-for-comfort Bahrain and Yemen.  You're starting to see mainstream meda reports suggesting that the Kingdom's influence is waning compared to Iran.  The region is clearly spooked enough to spend an extra $36 billion to forestall a massive turnout for the planned "Day of Rage" on March 11.    If that doesn't work, the king might have to fall back on The Onion's suggested strategy.

With all of this going on, however, I find this report by the Financial Times' David Blair,  Jack Farchy and Javier Blas to be veeeeerrrrryyy interesting:

Saudi Arabia is in “active talks” with European oil companies to meet the production shortfall left by Libya, the clearest indication to date that the leader of the Opec oil cartel is about to boost supplies to stop further rises in the oil price, which surged to near $120 a barrel on Thursday. 

Riyadh is asking “what quantity and what quality of oil they [the European refiners] want,” a senior Saudi oil official said on condition of anonymity....

Paolo Scaroni, Eni chief executive, on Wednesday made the most pessimistic public assessment to date of the impact of the Libyan crisis on the country’s oil output, saying the country was producing only 400,000 b/d, compared with 1.6m b/d before the violence erupted.

“The real phenomenon is there are 1.2m barrels less on the market,” Mr Scaroni told reporters in Rome, adding that the loss of Libyan production was “not a huge thing, but it is something and there is also a sense of general uncertainty in the region which can be the trigger for speculation”.

The shortfall means the world market is enduring its biggest oil crisis since hurricane Katrina in 2005 knocked out most US oil production in Gulf of Mexico.

Traders believe that Saudi Arabia has the capacity to increase production and also the oil of the right quality to meet the shortfall. The kingdom produces so-called Arab Extra Light and Arab Super Light, which through blending could be made to resemble the high-quality, light, sweet oil produced by Libya.

The Saudi move comes as oil prices reached levels that many economists believe will dramatically slow the global economy and potentially trigger a double-dip recession. Oil prices hit an all-time high of nearly $150 a barrel in mid-2008.

Here's my question:  why are the Saudis being so cooperative at this point?  There might be sound strategic reasons -- preventing a double-dip recession, assuaging longstanding allies, etc.  It could be that the Saudi leadershipis feeling secure enough to plan for long-term price stability.

Still, based on the recent reportage, I'm a little surprised that the Saudis aren't exploiting the current uncertainty to ensure the security of the current regime going forward. If I was a Saudi prince right now, I'd be blowing my fortune during a 72-hour blowout in Vegas involving Salma Hayek, Christina Hendricks, and all the shrimp I could eat making it very clear to my buyers just how important stability is in my neck of the woods. 

As an energy consumer, I'm grateful for the current Saudi behavior.  As someone who studies the global political economy, I'm surprised and puzzled by this same behavior. 

Am I missing anything?  

Jad Mouawad and Andrew Revkin report in the New York Times on just the most darling Saudi proposal for how to help solve the global warming problem: 

Saudi Arabia is trying to enlist other oil-producing countries to support a provocative idea: if wealthy countries reduce their oil consumption to combat global warming, they should pay compensation to oil producers....

The chief Saudi negotiator, Mohammad al-Sabban, described the position as a “make or break” provision for the Saudis, as nations stake out their stance before the global climate summit scheduled for the end of the year.

“Assisting us as oil-exporting countries in achieving economic diversification is very crucial for us through foreign direct investments, technology transfer, insurance and funding,” Mr. Sabban said in an e-mail message....

A recent study by the International Energy Agency, which advises industrialized nations, found that the cumulative revenue of the Organization of the Petroleum Exporting Countries would drop by 16 percent from 2008 to 2030 if the world agreed to slash emissions, as opposed to the projection if there were no treaty.

But with oil projected to average $100 a barrel, the energy agency estimated that OPEC members would still earn $23 trillion over that period.

If Saudi Arabia was serious about diversifying its economy, it would open up its spigots and let the price of oil fall to the point where there were market incentives for economic diversification.  Somehow, I don't see that happening.   

So, this isn't really going to go anywhere -- but what I do find particularly amusing is that if one thought about compensating dirty energy producers for the costs of climate change mitigation, then oil producers would be close to the back of the line.  Coal-producing economies -- like China and the United States -- would be justified in demanding much greater levels of compensation, since coal is a much dirtier energy source.  Oil would be in front of natural gas producers, and that's about it. 

Readers are encouraged to proffer their own proposals in the comments that would seem more outlandish than the Saudi one.  Creativity counts!!

From the plains of North Dakota to the deep waters of Brazil, dozens of major oil and gas projects have been suspended or canceled in recent weeks as companies scramble to adjust to the collapse in energy markets. In the short run, falling oil prices are leading to welcome relief at the pump for American families ahead of the holidays, with gasoline down from its summer record of just over $4 to an average of $1.66 a gallon, and still falling. But the project delays are likely to reduce future energy supplies — and analysts believe they may set the stage for another surge in oil prices once the global economy recovers.

1. If oil prices are sky-high, the energy sector explains that it will be slow to develop new fields, because exploration requires massive fixed investments and no one knows what the price of energy will be 5-10 years from now;
2. If oil prices are low, the energy sector explains that it is unprofitable to develop new fields because... energy prices are low.