In June 2008, I sat in a Jeddah Hilton conference room packed with ministers from more than 100 countries waiting for King Abdullah to arrive.
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Abdullah → sit → countries
Oil was closing in on a record price.
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Oil → close → price
It offered a modest increase in output and told governments to cut taxes and rein in speculators.
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It → offer → speculators
Less than three weeks later, on July 11, crude hit about $147 a barrel.
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crude → hit → 147
This week in Riyadh, another ministerial gathering took place.
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gathering → take → place
The man now leading the kingdom’s response, Prince Abdulaziz bin Salman, was an assistant oil minister two decades ago.
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man → lead → response
Saudi officials said investors had pushed prices well past what supply and demand justified, and that financial trading in oil had grown many times larger than the physical market.
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trading → say → market
Washington thought OPEC should pump more.
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OPEC → think → more
Riyadh replied that it would not build capacity for buyers who did not exist.
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who → reply → buyers
Gulf crude is trapped behind the Strait of Hormuz, and the kingdom’s answer is to build around it.
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answer → trap → it
Prince Abdulaziz told the World Petroleum Congress that Saudi Arabia may lift its East-West pipeline capacity from about 7 million barrels a day to 10 million within three years, and he wants more international involvement.
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he → tell → involvement
His logic is that the more countries have a stake in the line, the better it is protected.
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it → have → line
Both responses share one feature.
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responses → share → feature
Saudi Arabia cannot solve the crisis alone, and it ends up paying for the attempt.
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it → solve → attempt
In 2008 it built rarely used spare capacity and has carried its cost ever since.
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it → build → cost
A new pipeline will follow the same pattern.
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pipeline → follow → pattern
When the war ends it will not run full, and Riyadh will keep it as insurance.
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Riyadh → end → insurance
The oil market has also shifted.
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market → shift → ?
In 2008, OPEC was dominant and no one else could add meaningful supply.
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one → add → supply
Some consumers searched for substitutes, and ethanol was an answer then.
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ethanol → search → substitutes
Today, it’s the electric vehicle.
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it → ’ → ?
But neither remedy has removed the need for fossil fuels and no price spike has changed the thirst for oil.
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spike → remove → oil
In 2008, the US relied on OPEC’s oil.
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US → rely → oil
Today, it has plenty of its own, a reality that may not be felt by Americans paying more at the pump.
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that → have → pump
If America needed OPEC barrels as badly as it did in 2008, the politics of this current crisis would look very different.
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politics → need → crisis
Geopolitical risk has been the main factor driving $100 oil this year, with shipping and insurance comprising more than a third of the price of the global crude benchmark.
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shipping → drive → benchmark
Even if Hormuz is opened tomorrow, the new logistics of moving crude will weigh on producers.
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logistics → open → producers
It will also change the relationship between states: Iraq is planning to build a pipeline through Syria to the Mediterranean, while Kuwait and Qatar may lean on their Gulf neighbors to reach ports outside the strait.
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Kuwait → change → strait
Ultimately, much of the bill will go to the same address: Riyadh.
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much → go → address
The kingdom has carried the cost of a largely idle pipeline for decades, and will soon have to revert to its role as the global swing producer, keeping prices fair to producers paying for new infrastructure, and consumers who won’t tolerate high prices forever.
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who → carry → prices
Wael Mahdi is an independent commentator specializing in OPEC and Saudi Arabia’s economy, and co-author of “OPEC in a Shale Oil World: Where to Next?”
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Mahdi → specialize → World
Notable
- Saudi Arabia’s oil supply could still be threatened even after the end of the war.
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supply → threaten → war
This report from the Center for Strategic and International Studies looks at what options there are.
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report → look → Studies
- Despite the oil shock, the Saudi economy can remain resilient, according to this briefing from the Atlantic Council.
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economy → remain → Council
The Aporia
