“Some speak of OPEC’s war on shale others claim OPEC is dead. Theories abound. They are all wrong,” Saudi Arabia’s Oil Minister Ali al-Naimi told the German-Arab Friendship Association in Berlin three days ago. “Why should we cut production? Why?” al-Naimi asked in December 2014 as several OPEC member countries like Venezuela were publicly urging the OPEC, including Saudi Arabia, to bring back stability in the oil market. According to Saudi Arabia, the main reason behind the dramatic fall in oil prices has resulted from the weakening of global demand.
The increasing energy efficiency of cars which are said to account for 60 percent of oil demand worldwide, global warming and the record production of shale gas from North America have caused the halving of oil prices. Cutting production would only send the oil prices higher momentarily since the general context of supply and demand will have not changed at all in the meantime, Saudi Arabia summed up, and in the end the oil market is back to square one with low prices. On the one hand, Saudi Arabia’s stance seems quite convincing, even more when one adds that Saudi Arabia’s public budget does suffer from the drop in oil prices too. Although Saudi Arabia can sustain such low prices for several years, contrary to major producers like Russia, Iran and the United States, however Saudi Arabia is also losing money.
On the other hand, it is true that low oil prices have been theoretically serving Saudi Arabia’s geopolitical interests, and indirectly these of the United States. Iran whose regional ambitions have been successful so far – in Iraq, Yemen, Lebanon – and whose nuclear program has become the top concern for Sunni Muslim countries has denounced a “political conspiracy by certain countries.” Iran’s balanced budget requires oil at approx. $100 a barrel and the Iranian government thinks Saudi Arabia seeks to push Iran’s economy to the brink. Russia and Venezuela also subscribed to variant but globally similar conspiracy theories. The United States is also a victim of Saudi Arabia’s refusal to cut oil production with a number of shale gas producers which are about to shut up shop.
As a result, Saudi Arabia would preserve its market share and reach important goals on the geopolitical scene. Although Saudi Arabia remains a major actor on the oil markets, its role seems a bit overestimated nowadays. What was true in the 1970s could be less true 40 years later. The world has changed, and for whatever moves Saudi Arabia undertakes, there is a price to pay. According to Cyceon, the price to pay to lead such global conspiracy for such long time is beyond Saudi Arabia’s means, not because Saudi Arabia can’t pay the price, but because geopolitical price is something one, even the richest countries, can’t necessarily afford in the long term.
Proof of this has been that low oil prices have not prevented Iran from playing a growing role in the region, especially in Iraq where it has sent military forces on the ground against ISIS or in Yemen where it is de facto ruling the country. Either the so-called Saudi conspiracy is a failure that has brought lukewarm results with counterproductive geopolitical effects or there has been finally no conspiracy at all.