Lower oil prices force Saudis to change strategy
Saudi Arabia has long been the dominant force in oil, leaving the world at the mercy of its ambitions and its interests. Now the kingdom must refresh its strategy to reflect a weaker hand — and in many ways, a different game.
The changing nature of the energy industry — the oil production boom in American shale fields, the persistence of lower crude prices, and the rise of natural gas — has transformed the geopolitical equation. While Saudi Arabia is still a major energy producer, it must compensate for its lost revenue. And the US, China and Russia are all circling in hopes of gaining a financial advantage.
Russia, smarting from Western sanctions and lower oil prices, is moving to embrace Saudi Arabia for energy deals despite their rivalry in Syria, where the two countries support competing sides. China, with its domestic oil production in steep decline, seeks a stable flow not just of Saudi oil but of Saudi investment in its growing petrochemical and refinery industries. And Washington is willing to overlook those flirtations in the hope that Saudi Arabia will continue to be a strategic bulwark against Iran.
The desires of all three superpowers fit neatly into Saudi Arabia’s strategy to find new investment partners as part of a broader push to diversify its oil-dependent economy, trim large budget deficits and secure the future of both the kingdom’s welfare state and its monarchy. The keystone to the project is the proposed initial public stock offering of Saudi Aramco, the national oil company, a deal that could be worth hundreds of billions of dollars.
The changing geopolitical game was on full display in December when Saudi Arabia’s energy minister, Khalid al-Falih, braved the Russian arctic cold as President Vladimir V Putin’s guest of honor at the opening of a giant natural-gas export terminal. For Putin, it was an audacious embrace of an American ally as he moved to expand his nation’s energy riches despite the current sanctions. For AlFalih, it was a chance to discuss future gas sales, attract investment in Saudi Aramco and coordinate efforts to prop up global oil prices.