Have you ever noticed that The United States of America, the police-man of the world, also knows how to make the best burger (McDonalds), pizza ( Pizza hut) ,Chips and Beverages (Pepsi Co) in the world. If that is not enough then the most effective, powerful and smart weapons are also forged inside the Military Industrial Complex of USA. Now, it turns out that a commodity, on which for years the Middle-East and especially the Saudi monarchy have been exercising a clout, seems to shift its axis of power, veering towards another continent i.e. North America.
In 1973 the West witnessed the power wielded by Saudi Arabia they realized how the kingdom, like a ventriloquist, commands the black gold. The camaraderie betwixt West and OPEC suffered an awakening jolt and very painfully the fact was made evident on the Consumers of Energy that the friends donned in Thobes are whimsical and as well as aggressive. But it is in the very fabric of history to play with the balance of power. Things are changing now. Crude oil, inter alia, has become a commodity guided by markets. Even a news of liminal nature appertaining demand/supply gets a response in shape of a major shift in prices and sentiments [also vice-versa]. The markets are now driven by comments peddled by energy ministers, company announcements and government communiques. With all the katzenjammer in the energy industry of-late a question has been baking enough that now the billowing smoke from it is reaching analysts and markets: Will US take over Saudi Arabia as a swing producer?
The enquiry begs a little context here: The vantage point KSA stands upon is the low production cost of drilling a barrel of oil as compared to the one drilled in North Sea or US. According to the Wall Street Journal (WSJ) the Saudi’s can pump oil at $8 a barrel whereas US’s cost rise up to $23 a barrel. But it is also pertinent to note that the production costs in US have been on a gradual decline. During the recent resuscitation of oil prices many of the companies brought back their drilling gear into the field when prices broke the psychological mark of $50 whereas others balked deeming this rally an illusion. In US, what is called the shale boom, has filled the coffers of the government with shale oil. The proliferation and improvement in technology, such as fracking, has given the US producers an advantage, and by the virtue of that a position, which its Oriental rivals couldn’t have thought few years back. They now have the ability to flex production up and down with more discretion than ever. Take for example the case of drilling costs. In year 2013 US shale producers needed oil prices at $83 to economically operate a drill. In 2015-16 the rig can be operated at $39 as Mr. Nyvseen of Rystad Energy, a consultancy company, points out. Wood Mackenzie, another consultancy company, conducted a study in 2016 February and found that the energy costs in US will continue to tread downwards in the future. The Saudi strategy of keeping out the high-cost producers seems to go awry and US has accepted the gauntlet with arms wide open.
So, the air is thick now with whispers that the West has thrown a noose on its Middle-eastern counter-parts as day by day as the cost of digging up a barrel of oil in the West starts to reach nigh that of in the Middle-East. US has also lifted up the 40 year old ban on its oil exports in an effort to tap markets. Few months back Financial-Times reported that Saudi Arabia has lost its market share and that out of 10million barrels produced it only exported 7 million. Few weeks’ back Rystad Energy reported that US now holds the greatest number of reserves i.e. 264 billion of oil surpassing Saudi Arabia, Venezuela and Russia. According to different analysts, that I have talked to over internet, the vox-populi seems be that OPEC and especially KSA has lost its power subsequently the title of swing producer of the oil industry.
The thawing between US-Iran relationships is another angst for the kingdom. Notwithstanding its incessant grumbling, US had successfully completed the nuclear-deal last year with Iran. This means the lifting of sanction (gradually) from the Shia dominant country liquidating their frozen assets subsequently being used to fund Hezbollah and Houthi militants in Yemen as per Saudi Arabia. Russia on the other hand is using the “funneling” technique by bombing militants in Syria and funneling them to south. Iran unlike other OPEC countries has been successful at wringing their oil wells and increasing their production to pre-sanction level another additament to the pantheon of worries for KSA.
KSA itself seems to be aware of the fact. Hence, the endeavors of the young and ambitious scion working 18 hours a day and taking charge of the bridles of the kingdoms political and economic machinery. Mr. Everything, as he is called in West, Deputy Crown Prince Muhammad Bin Salman is changing the whole economic outlook of the kingdom first by introducing, what has been called, a plan to wean KSA of oil- Saudi Vision 2030.
In the end I would like to quote David Sanger, Chief Washington correspondent of The New York Times, he writes: “increased US oil and shale extraction and production have fractured the mutual dependency that was once a key part of the US-Saudi alliance.” By utterly concurring to his viewpoint I still opt a cautious tone by saying that the US-Saudi alliance may have not reached to the point of collapse but the chasm between 70 years old allies is, certainly, widening.