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The perils of Saudi reform
November 19, 2017
In a dizzying sequence of events, Saudi Arabian Crown Prince Mohammed bin Salman took a series of moves that will strengthen his status as heir to the throne and the face of his country’s future. These included a roundup of prominent royals, businessmen, and officials and the arrest of a major international Saudi businessman. At the same time, Saudi defense systems intercepted a missile fired at Riyadh from Yemen, the Lebanese prime minister resigned his post during a visit to Saudi Arabia, and another powerful Saudi prince died in a helicopter crash.
Rumors and speculation swirl around these events, but one conclusion is clear: These actions will escalate Saudi-Iranian tensions and the Sunni-Shia fault line that divides the region. We see this deadly rivalry in the proxy war in Yemen, the political competition in Lebanon, and in the 2016 execution of prominent cleric Nimr al-Nimr.
Unfortunately for American interests and the stability of the global economy, these battles are playing out above the world’s largest oil fields. Saudi Arabia’s Shias are concentrated in the nation’s Eastern Province, which is also home to the country’s 12.5 million barrels per day (mbd) of oil production — the single largest oil producing region in the world.
Meanwhile, Saudi Arabia and Iran are the first and third-highest producers in the Organization of the Petroleum Exporting Countries (OPEC) respectively, jointly responsible for over 16 percent of daily global supply. Their conflict has far-reaching consequences for the entire region, potentially putting at risk up to 27 mbd produced across the Persian Gulf — one third of the world’s total.
Although increased domestic production has reduced the need for imports, America remains the world’s largest consumer — requiring one-fifth of daily global supply — and buys 7.5 million barrels of crude every day.
No matter how much the United States produces or imports, the global nature of the oil market means that a supply interruption anywhere impacts prices everywhere, and with 92 percent of our transportation system powered by oil, price volatility puts our entire economy at risk. Every American recession since World War II has been preceded by or occurred concurrently to an oil price spike; every one cent increase in the price of gasoline removes $1-2 billion in consumer spending.
Furthermore, the large, low-cost reserves concentrated in the Middle East and managed by state-run oil companies mean that oil market is dominated by OPEC and other petrostates, who could influence prices either intentionally by manipulating supply or unintentionally through spillover consequences from political or military conflict. Events in the Middle East raise the risk of supply interruptions or manipulation in the most important oil producing region in the world.
A major and prolonged oil supply disruption would rip through the global economy and devastate the prosperity of the United States. Despite the emergence of technological solutions to improve the efficiency and fuel diversity of the transportation sector, we remain vulnerable to events in other countries.
Earlier this decade, a civil war in Libya raised the price of a gallon of gas by $0.50. A succession battle or an insurgency in Saudi Arabia would be far, far worse. In the late 1970s and early 1980s, revolution and war in the Persian Gulf caused oil prices to more than double. Conflict today between Saudi Arabia and Iran might have similar results.
The solutions for policymakers are clear and domestic solutions are at hand. In addition to producing more oil here at home, maximizing every barrel we do use through efficiency and shifting our vehicle fleet toward domestic fuel sources — electricity, natural gas and hydrogen — will reduce our oil dependence so that we are not at the mercy of leaders and events in distant lands.
This week’s moves in Riyadh underscore the fact that aggressive steps must be taken to continue creating a transportation system that truly works in our national interests.
• Dennis Blair. a U.S. Navy admiral, served as director of national intelligence and commander in chief of the U.S. Pacific Command. Michael Hagee, a U.S. Marine Corps general, served as the 33rd commandant of the U.S. Marine Corps. They are co-chairs of the Commission on Energy and Geopolitics, a project of Securing America’s Future Energy (SAFE).Back