In a bid to dampen rising oil prices, the House of Saud last week promised to pump an additional 1.3 million barrels per day, indefinitely.  The markets, though, didn?t buy what the Saudis were selling?prices didn?t drop?and neither should anyone else.

What should dictate our approach to the Saudis is that they need us to buy their oil just as much as we need them to sell it to us.  Not just now, but also in the future.

Yet conventional wisdom among self-appointed foreign policy experts ignores this basic reality, and as a result, Saudi Arabia holds the diplomatic catbird seat, enjoying perks available to few, if any, other nations.

Almost as powerful a factor as black gold is inertia, as this is a relationship that goes back decades.  Notes Hudson Institute senior fellow Laurent Murawiec, ?This is a relationship that has been cemented by forty years of money, power, and political favors that goes much deeper than most people realize.?

Despite the fact that the United States unflinchingly?some would say disturbingly?backs the House of Saud, the favor is not always returned.

During the 1973 oil crisis, American policymakers were convinced that the House of Saud would come to their rescue with an influx of cheap oil.  It didn?t happen.  The kingdom went in the other direction, and world oil prices tripled.

Less than two decades later, when Saddam Hussein seemed poised to extend his Kuwaiti offensive into Saudi Arabia, the United States defended its oil-rich friend.  When the United States finally saw fit to unseat Saddam last year, however, the Saudis weren?t willing to give us more than some under-the-table assistance.

In the current context, conspiracy theorists insist that last week?s pledge was merely the formal enactment of a previously arranged favor to President Bush to lower prices before the election, as first reported by Bob Woodward earlier this year.

A much more reasonable and practical explanation, though, is grounded in simple economics: If the price of oil gets too high, investment dollars will flood research and development efforts behind alternative fuel sources. 

And that would be bad news for oil producers everywhere.

The simple truth is that oil is the dominant energy source because it is the cheapest at such a massive scale.  But part of the reason no cheaper alternatives exist is that there hasn?t been enough of a financial incentive to date for private capital to expend the requisite funding to find one.

For all the greenies who blame government interference or lack of taxpayer support for the relative dearth of green-friendly energy sources, limited government funds could never fuel the necessary technological innovation.  Private capital markets, however, have far more on hand to fund comprehensive?and expensive?research. 

There just needs to be an incentive to open the floodgates?and soaring oil prices might be the best one.

No one understands this better than the Saudis.  Thus while they obviously would like sky-high oil prices, the reality is that long-term considerations place the ceiling substantially lower. Continued...