ENDING SAUDI OIL DOMINANCE: We Won The Oil War. Now What?

By all accounts the Saudi economy is in decline. Low oil prices are forcing the Kingdom to live off savings, a process which can only last for so long. “The International Monetary Fund in January slashed its forecast for Saudi economic growth this year to 0.4 percent from 2 percent. … Net foreign assets, though still above $500 billion, are shrinking as the government uses savings to plug a budget deficit that reached $79 billion last year — $107 billion if delayed payments to contractors are included.” The Saudi government has a six point plan aimed at tightening its belt and minimizing economic unrest at it tries to shift away from oil but it may be too little, too late to sustain it in the same old style. . . .

One person who understood the growing strategic weakness of the Saudi position was Rex Tillerson. Speaking in October 2016 as the chairman of Exxon Mobile, when a president Hillary was still universally anticipated, “Tillerson told Saudi Arabia’s energy minister on Wednesday that fears of a new global oil supply crunch were exaggerated as the U.S. oil industry was adapting to the low price shock and was set to resume growth.” The Saudis had cut oil prices in the belief that it would bankrupt American producers. Instead innovation turned North America into the big swing producer. . . .

Just as the US won the Cold War not because federal government agencies outwitted the Reds but because American society out-competed the Soviets, the frackers may have bankrupted the Sunni Jihad. But in doing so the oil men have created a potential power vacuum even bigger than which resulted from the Arab Spring. Technology often creates new power relationships which officials only belatedly respond to. The consequences of American oil power have not yet been fully assimilated by the political system. Turmoil in the Kingdom and the Gulf might trigger a tragedy that would make events in Syria and Libya seem trivial by comparison.

The declining fortunes of the Kingdom may have led president Obama to attempt a rapprochement with its Islamic nemesis Iran. It may have tempted Erdogan to grasp at the mantle of Sunni leadership as it was up for grabs. And it may now be impelling the Trump administration to put a hand in the game before Putin sweeps up the pot. But none of these answered the basic question of how to transition whole populations from a resource-based economy into something more sustainable. If the discovery of vast oil reserves in Arabia was pivotal in giving impetus to the Sunni Jihad the present shift will incontestably create another trajectory-changing moment.

For years a reduced dependence on Middle Eastern oil has been a policy goal. The dog’s caught the car. What now?

The transition will have its bumps, but the less money and power the Middle East has, the better.