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Saudi Oil Still Matters


It’s easy to get carried away by the optimistic rhetoric that has accompanied the US shale boom. The oil and gas windfall has dramatically changed the global energy landscape and significantly brightened America’s energy future, creating jobs, boosting industry, lowering US emissions, and lessening our dependence on foreign oil.

But one thing it hasn’t done is make us energy independent. As long as we continue to consume oil, it never will. Saudi oil remains particularly important, not just to the US, but to the global market. The FT reports:

[A]rguably Saudi Arabia is more important to future oil market supplies than ever. There are two reasons for this—the kingdom’s commitment to maintain spare capacity and the nature of its contracts with customers, which allows them to ask for more oil when the market is tight. […]

Even as US output has surged, Saudi spare capacity has proved crucial in meeting supply shortages. The kingdom raised output during the civil war in Libya, and last year raised production to a 30-year high of 10mb/d as US-led sanctions reduced exports from Iran. Saudi officials are also sceptical about how quickly US shale output will increase and reduce demand for their own crude.

Saudi spare capacity and its willingness to ramp up its exports when other sources dwindle help even out the global oil market and protect consumers from price shocks. Because even if the US manages to produce more oil than it consumes, its price of oil will still be vulnerable to international events. Saudi oil gives the global oil market a cushion against these price spikes.

While we look forward to the day when the US becomes a net exporter of black gold, we need to keep in mind that true energy independence is a myth.

[Oil rig image courtesy of Shutterstock]

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  • wigwag

    Unfortunately we still need not only Saudi oil but also Saudi political support. With the Muslim Brotherhood kicked out of office in Egypt, any hope for stability and the avoidance of mass starvation in that country depends on massive subsidies; probably up to $10 billion per year. The only nation in the world with the resources and inclination to provide those subsidies (at least temporarily) is Saudi Arabia.

    If Obama carries through on his threats against Iran and eventually orders a military strike, the only thing standing in between massive price increases in oil and a seriously damaged world economy is Saudi Arabia.

    As counterintuitive as it may seem, it would actually be bad if oil prices get too low. Saudi Arabia needs to massively subsidize its own population to prevent the emergence of its version of the Arab Spring. Subsidizing its own population while providing subsidies to Egypt (and Jordan) costs alot of money. So does arming Syrian rebels to prevent an Assad victory. Saudi Arabia needs high oil prices to pay for all of this.

    Lets hope oil prices stay high enough so they can.

    • Tom

      Why don’t we want a destabilized Saudi Arabia?

      • wigwag

        For many reasons; political havoc in Saudi Arabia would create extraordinary pressure on world oil prices and could lead to devastating economic problems for the United States and the world. Saudi Arabia is the principle adversary of Iran and Iran represents a huge threat to the United States and Israel. An American or Israeli attack on Iranian nuclear installations would probably involve Saudi airspace and perhaps Saudi air fields. Saudi Arabia is almost single handedly supporting the rebels trying to topple Assad; without Saudi help, Assad would win. Saudi instability could lead to the overthrow of the Sunni Royal family in Bahrain and allow the Shia, who are aligned with Iran to take over. This would be devastating to American interests; the U.S. has enormous military installations in Bahrain. A Bahrain led by the Shia joining Shia controlled Iraq, Shia dominated Lebanon (see Hezbollah) and a victorious Assad would effectuate the dreaded Shia crescent that would be implacably hostile to the United States.

        I could keep going if you would like.

  • Pait

    We import less oil then we could save by telecommuting, bicycling, and using public transportation. Complete energy independence may be elusive, but the roots of dependence are inertia, laziness, and prejudice.

  • wigwag

    More evidence that Saudi oil matters. The Times of Israel is reporting that now that the Muslim Brotherhood has fallen, the Saudis have already agreed to start subsidizing Egypt to the tune of billions of dollars. The Saudis are the only people who can save Egypt and they are doing it.

    “…senior Egyptian official told Reuters that the UAE had decided to give Egypt $1 billion and loan it another $2 billion. According to the official, the vast sums of money are part of a larger economic support plan….Several hours later, the message came out that Saudi Arabia would be granting Egypt $5 billion.

    The UAE is getting in on the act too. The Times of Israel says,

    “…in light of Egypt’s fuel crisis, the UAE sent 30,000 tons of diesel fuel that will arrive at the Port of Suez and in a minor way reduce the pressure on the gas stations.”

    Yes, Saudi oil still matters. The UAE’s oil does too.

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