The Problem of Success
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 as it tries to shift away from oil but it may be too little, too late to sustain it in the same old style.
The Citizen’s Account is a programme meant to soften the impact of austerity measures on low and middle-income Saudis ... The government began a multiyear programme of gradual reductions to fuel, water and electricity subsidies with a surprise announcement in late 2015, sending Saudis rushing to petrol stations to fill up. ... From July, the government will charge an unprecedented monthly fee for foreign workers with dependents in the kingdom.
Although Riyadh has tried to reinvent itself as an "arsenal of Arabia" with an arms industry taking the place of oil, the Islamic Military Alliance whose arsenal it was to have been built around a Turkish-Saudi Army based in Riyadh has been less than impressive. Actions by the Trump administration to drive back Iran in Yemen and Syria may be aimed less at ensuring Saudi victory than a rearguard action against too swift a Russian and Iranian advance.
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 ... 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.
The remarks by Tillerson ... come as the Saudis have effectively abandoned their strategy to drive higher cost producers out of the market by ramping up cheap supplies from their own fields ... shale oil producers' resilience in cutting costs to make some wells profitable at as low as $40 a barrel means that North America has effectively become a swing producer that will be able to respond rapidly to any global supply shortage.
"I don't quite share the same view that others have that we are somehow on the edge of a precipice. I think because we have confirmed viability of very large resource base in North America ... that serves as enormous spare capacity in the system," Tillerson told the Oil & Money conference.
The twilight of Saudi oil dominance has arrived, a point underscored by the announcement of a giant onshore oil find in Alaska. "Some 1.2 billion barrels of oil have been discovered in Alaska, marking the biggest onshore discovery in the U.S. in three decades. The massive find of conventional oil on state land could bring relief to budget pains in Alaska brought on by slumping production in the state and the crash in oil prices." But the impact of that change has not yet been assimilated in public perception.
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 oilmen 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?
Follow Wretchard on Twitter
For a list of books most frequently purchased by readers, visit my homepage.
Support the Belmont Club by purchasing from Amazon through the links below.
The Vegetarian Flavor Bible: The Essential Guide to Culinary Creativity with Vegetables, Fruits, Grains, Legumes, Nuts, Seeds, and More, Based on the Wisdom of Leading American Chefs, by Karen Page. A comprehensive guide to maximizing flavor using vegetables based on insights from the chefs of such acclaimed restaurants as Crossroads and M.A.K.E. in Los Angeles; Cavendle 79, Dirt Candy, and Kajitsu in New York City; Green Zebra in Chicago; Greens and Millennium in San Francisco; Natural Selection and Portobello in Portland; Plum Bistro in Seattle; and Vedge in Philadelphia.
Inventing the Individual: The Origins of Western Liberalism, In a grand narrative spanning 1,800 years of European history, distinguished political philosopher Larry Siedentop firmly rejects Western liberalism’s usual account of itself as emerging in opposition to religion in the early modern era. He argues instead that liberal thought is, in its underlying assumptions, the offspring of the Church.
The Ransom of the Soul: Afterlife and Wealth in Early Western Christianity, by Peter Brown. Marking a departure in our understanding of Christian views of the afterlife from 250 to 650 CE, this much-acclaimed book explores a revolutionary shift in thinking about the fate of the soul that occurred around the time of the fall of Rome. Brown describes how this shift transformed the Church’s institutional relationship to money and set the stage for its domination of medieval society in the West. Some critics' notes: "beautifully written" and "prodigiously original".
The Day of Battle: The War in Sicily and Italy, 1943-1944 (Volume Two of The Liberation Trilogy), by Rick Atkinson. In the second volume of his epic trilogy about the liberation of Europe in World War II, Atkinson tells the harrowing story of the campaigns in Sicily and Italy. He follows the strengthening American and British armies as they invade Sicily in July 1943 and then, mile by bloody mile, fight their way north toward Rome.
For a list of books most frequently purchased by readers, visit my homepage.
Did you know that you can purchase some of these books and pamphlets by Richard Fernandez and share them with your friends? They will receive a link in their email and it will automatically give them access to a Kindle reader on their smartphone, computer or even as a web-readable document.
The War of the Words, Understanding the crisis of the early 21st century in terms of information corruption in the financial, security and political spheres
Rebranding Christianity, or why the truth shall make you free
The Three Conjectures, reflections on terrorism and the nuclear age
Storming the Castle, why government should get small
No Way In at Amazon Kindle. Fiction. A flight into peril, flashbacks to underground action.
Storm Over the South China Sea, how China is restarting history in the Pacific