Good Luck Saudi Arabia, You’re Going to Need It

Image Caption: Bahrain’s Minister of Foreign Affairs Khalid bin Ahmed Al-Khalifa (R) attends the Organisation of Islamic Cooperation (OIC) Foreign Ministers emergency meeting held in the holy city of Mecca on November 17, 2016. / (Photo /AFP/Getty Images)

Depending on your political preference, you either have to feel sorry for Saudi Arabia or savor the moment . The country’s four decade run as global oil king is slipping through its fingers, at there’s not really much it can do to stop the slide. Sure, Saudi Arabia is still the world’s largest oil exporter and its second largest oil producer, but its ability to sway global markets as it did in the past is gone.

Many factors have attributed to the Saudi’s lost power in global oil markets – here are a few: Its decision in November 2014 to forgo its historic role of oil markets swing producer and actually ramp up production as global oil supplies were becoming saturated is one, while another is the U.S. shale oil revolution that started the whole oil supply glut scenario in the first place. However, the Saudis still had the chance to be masters of their own fate, and frankly they blew it.

In a fever-pitched attempt to protect market share, particularly in Asia and Europe, they kept pumping and pumping, so much that they reached new output levels in July. The Saudis had also hoped to shut out as much U.S. shale oil production as possible, but that also backfired.

U.S. production did indeed drop, but its coming back. According to a Goldman Sachs report in September, U.S. shale oil production could increase as much as 700,00 barrels per day (bpd) by the end of next year – effectively wiping out the previous two-plus years of losses. Others, however, see U.S. shale oil coming back, but at a slower pace.

The results of the Saudi pump-at-all-costs decision has indeed been cataclysmic for the global oil industry, but also for Saudi Arabia itself, with problems ranging from historically high budgets deficits (nearly US$100 billion last year) to being forced to put in place its first ever and politically unpopular austerity measures.

(Source: Forbes.com)