Saudi Arabia: The Power Behind OPEC, is latest in a series of Issue Briefs authored by Securing America’s Future Energy (SAFE) focusing on the future of the cartel. The paper addresses how OPEC’s strategy is influenced chiefly by Saudi Arabia, and how the country’s domestic changes affect the group’s policy.
The Issue Brief finds that Saudi Arabia’s strategy of maintaining production to hurt U.S. and other non-OPEC producers has not only caused rifts within OPEC members, but has also caused complications within the Kingdom. These problems, the paper adds, could be exacerbated by a range of domestic issues ranging from subsidy reform to Saudi royal disputes.
The Issue Brief concludes that oil price volatility created by Saudi Arabian policies has created a highly uncertain investment environment, and has significantly affected American jobs. The best way for the United States to protect itself from this uncertainty is to reduce our near-total dependence on oil in the transportation sector, increase fuel efficiency and accelerate the development and deployment of advanced transportation fuels including electricity and natural gas.
Issue Brief Highlights
Saudi Arabia’s influence over OPEC policies harms stakeholders in the United States. This influence, coupled with uncertainty over the long-term stability and security of global oil supplies—both of which are necessary to maintaining a well-supplied oil market—cause great harm to the U.S. economy, and increase the urgency of efforts to reduce the U.S. transportation sector’s dependence on oil.
Saudi Arabia’s strategy going forward could include changing its production levels to induce boom-bust cycles in the global oil market, or returning to an extended period of OPEC-coordinated action to artificially elevate prices, something they have done several times before.
In the United States, these pricing practices would constitute oil market manipulation, and their implementation would be subject to criminal or civil prosecution under existing U.S. statute.
However, domestic cuts risk stoking domestic discontent and a publicly traded Aramco could present further legal complications for Saudi Arabia’s policy of manipulating its output levels.
While Saudi Arabia’s high-production strategy has succeeded in regaining market share for both the nation and OPEC, it has contributed to a dire financial trajectory for the nation. Total currency reserves have fallen by $180 billion since 2014, and despite a surplus of 12 percent as recently as 2012, budget deficits are projected by the IMF to continue to reach or exceed 9 percent for each year through 2021.