Oil talks: Saudi Arabia's Oil Minister Ali al-Naimi before the OPEC meeting in Vienna. Credit:Reuters "What we now have is a year-long game of chicken," former Obama energy adviser David Goldwyn told reporters. "The Saudis … are waiting to see how much pain the other major oil producers can take before they are willing to make meaningful [production] cuts. "If Brent [the global oil benchmark price] sinks below $US60, I think you'll see OPEC hit the panic button pretty fast." Seen through the Sunni prism with which Riyadh observes the Middle East, Tehran must be punished for its nuclear ambitions and for its support for both the Syrian regime of Bashar al-Assad and for the new Shiite ascendancy in Iraq. Moscow, where the budget relies on an oil price of $US100, must cop it for its support for Damascus and Tehran. The Saudis are happily whacking the Iranians and the Russians. But beyond such obvious enemies, some analyses also conclude that Riyadh is calculatedly lashing out at Washington over a laundry list of American failures in the region. And how better to do that than to unnerve the US by dropping oil prices into the range at which America's newfound energy self-sufficiency becomes marginal?

Ditto the so-called Islamic State in Iraq and Syria, which relies on smuggled oil for revenue. An analysis by Bank of America-Merrill Lynch in mid-October argued that Riyadh wanted the oil price to fall to rob the militants of funds – if the world price tumbles, the logic goes, then IS can no longer afford the discount that makes its oil sufficiently attractive for buyers to risk the whole messy business of dealing with smugglers. Meeting in Vienna at the end of November, the Saudi-dominated Organisation of Petroleum Exporting Countries [OPEC] rejected calls by several cash-strapped members for a production cut, which they figured would serve as a brake on oil prices – and thereby avert the budget crises they face. The Saudis are not in the habit of explaining themselves. But perhaps the best measure of their policy determination in all this is Riyadh's willingness to wear the cost of the lower prices – if they were to simply close a few spigots, there would be less oil to sell and so prices would rise. Riyadh has the cushion of massive financial reserves. But even before this latest price tumble, the International Monetary Fund warned that at its current rate of spending - which includes billions as a pay-off for its people to suppress any Arab Spring-type yearnings - Riyadh risked a fiscal deficit as early as next year. The Saudis are worried that the US has joined the ranks of the world's leading energy producers. But they are apoplectic at the threat they perceive in the combined production of the Shiite-dominated regimes of Iran and Iraq elevating the Tehran-Baghdad axis to an industry status enjoyed only by Saudi Arabia – that's the role of "swing" producer, one that is not so utterly dependent on its oil revenue that it must produce at maximum capacity at all times and hence is not in a position to influence prices.

As prices go through the floor - now 40 per cent off their June peak - the producer countries that take the biggest budget hit are Iran, Venezuela, Algeria, Nigeria, Russia, Ecuador, Iraq and Angola. The Saudis' "break-even" price point, which it needs to sell oil and to make a businesslike profit after recovering production costs, this week reportedly was $US98 per barrel. In an enigmatic moment in 2013, Saudi Oil Minister Ali al-Naimi told reporters: "In 1997, I thought $20 was reasonable. In 2006, I thought $27 was reasonable. Now it's around $100 …and I say again 'it's reasonable'." But spare a thought for other producers – Yemen, $US160; Algeria, $US132; Iran, $131; Iraq, $US111, Russia, $105. And the US too. Washington no doubt is pleased with the budget crises in Tehran and Moscow, but it too will feel the pain as its energy producers see their profit margins shrink. The International Energy Agency estimates a break-even price of $US42 for the US which, by 2016, is expected to be a net exporter of oil, driven by a "shale revolution" which has seen oil production rise by 80 per cent since 2008. But news reports this week put the US break-even point much higher – as high as $US70.

There is a self-serving point in this for Riyadh. The Saudis well remember the 1980s when they cut production and lost market share. Fast-forward to the present, they absorbed sales lost by Iran and Syria and don't want that market share snaffled by others – and so they prefer to sell more for less, rather than less for more. But the Saudis are not alone in the trenches of oil warfare. Weeks before OPEC's November decision focused attention on Riyadh's wielding of the oil weapon, the US academic and analyst Michael Klare observed that almost without scrutiny, the US had resorted to oil as its weapon of choice. Recalling condemnation of the 1973 Arab oil embargo – "it was heinous. It was underhand. It was beyond the bounds of international morality," he writes – Klare observes that the tactic has been upended. Instead of producers refusing to sell, the US now used sanctions to prevent them from selling, "so depriving hostile producing powers of operating revenue". Think Tehran and Moscow, and the sanctions in which both have been straitjacketed in a bid to bend them to the will of Washington and its allies – the former over its nuclear program; the latter over its interference in Ukraine. The upshot is that they get less oil to market because of the Americans; and they are obliged to take a lesser price for what they can sell because of the Saudis.

Their punishment invariably is reported simply as "sanctions", but as Klare says: "To control oil flows across the planet and deny market access to recalcitrant producers increasingly is a major objective of American foreign policy." Arguably this oil war is different from its predecessors, unfolding against a global and technological landscape in which old verities become less certain – like OPEC's capacity to make us quake in our boots; like the Middle East as an essential sphere of American influence. Some analyses now speculate that burgeoning non-OPEC production, driven in part by the shale oil revolution in North America and solar and other technological advances that will reduce or eliminate the role of oil as a transport fuel, are rendering OPEC a dinosaur. Also, as observed by Michael Lynch, who heads the consulting group Strategic Energy and Economic Research: "[OPEC members] don't have the same power they once did because so many of the members are in bad financial condition and so it's harder for them to cut production and lose revenue in the short term to raise prices." Heralding a new post-OPEC era, the energy historian Daniel Yergin told reporters: "This is an historic turning point – the defining force now in world oil is the growth of US production. The outcome of the OPEC meeting [in Vienna] is a clear indication that the oil exporters now recognise that this is a new market." The rise of unconventional oil production processes, like the shale and tar sand processes, puts a question mark over the Middle East as a dominant global energy source.

Analyst Robert Kaplan of Stratfor Global Intelligence cites a decades-long history of the Persian Gulf as a primary US interest – crucial for America's economic success. At the same time he writes: "But increasingly the Persian Gulf represents only a secondary interest to the US – a region important to the wellbeing of American allies, to be sure, and to world trade and to the world economic system in general, but not specifically crucial to America itself." Kaplan's point is that as the US edges closer to energy self-sufficiency and the Middle East becomes more chaotic, America's relevance in the region would decline and the region would become a problem for China and India, whose economies are becoming increasingly reliant on Middle Eastern energy – just as a more energy-sufficient US economy becomes less so.