Saudi Arabia’s Existential Crisis Returns As US Shale Booms Anew

  • Date: 19/03/18
  • Financial Times

Kingdom seeks higher prices that risks greater North American production

When Saudi Arabia’s crown prince Mohammed bin Salman visits the US next week, he will champion a new vision for the desert kingdom — one that is technologically savvy, religiously moderate and has a global influence beyond its oil prowess.

He should thank his hosts for the opportunity. It was the US shale boom that caused a structural shift in the energy industry and induced a collapse in oil prices, forcing the kingdom to confront economic dependence on its resource riches.

Yet limiting the kingdom’s reliance on oil revenues in the future requires higher prices today to fund sweeping economic and social reforms to help create Saudi Arabia 2.0. The risk is that buoyant crude prices allows shale producers to pump without restraint, challenging the country’s oil dominance and in the long run jeopardising the country’s entire modernisation programme.

The kingdom’s existential crisis was first laid bare in 2014 and again it is grappling with this dilemma and this time there is little room for manoeuvre.

“Saudi Arabia has an ambitious reform agenda now. Prior comments from officials who said they don’t care if oil prices go to $20 or $30 a barrel is clearly no longer the view,” says Jason Bordoff at Columbia university’s Center on Global Energy Policy. “But higher prices have shown that they can bring shale supplies back even more strongly than people think.”

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