Staring down the barrel
August 6, 2015 6:48 AM   Subscribe

With oil prices low and unlikely to rise, Saudi Arabia is in severe trouble, facing existential crisis by the end of the decade if the oil futures market is right.

Having no industry other than oil extraction, no tax base and high expenses from supporting a largely unproductive population (not to mention increased defence spending in response to regional upheavals), Saudi Arabia is dependent on oil prices remaining high; which they have done for decades, thanks to the OPEC cartel's control of oil supplies; a slow decline in oil production thanks to Peak Oil promised to keep the party going for another few decades, leaving someone else to come up with an exit strategy. But now, unconventional oil production in the US and elsewhere and the adoption of technologies such as renewable energy appear to have permanently depressed the price well below the point where the Saudi budget is balanced. Saudi Arabia seems to have conceded that OPEC's influence over oil prices is defunct, and switched to flooding the market with cheap oil, taking what money it can get and attempting, with little prospect of success, to make investment in alternative energy sources uneconomic.

(Previously, on the Saudi royal welfare programme.)
posted by acb (55 comments total) 20 users marked this as a favorite
 
Cry me a river.
posted by OHenryPacey at 6:55 AM on August 6, 2015 [16 favorites]


A river of oil?
posted by snofoam at 7:00 AM on August 6, 2015 [1 favorite]




The point, I think, is not that we're supposed to feel sorry for the fucked-up power structure in Saudi Arabia, but to acknowledge that this might have an effect on its private citizens, who will have to reap what their government sowed.
posted by savetheclocktower at 7:04 AM on August 6, 2015 [18 favorites]


ISIS in, well, Iraq and Syria is a problem.

ISIS-style takeover of Saudi Arabia would be an even bigger problem. Disturbance and upheaval in this area (especially with Yemen as a failed state) is a threat.

It is long past time to develop domestic and alternative energy sources. Depending on this wobbly monarchy is dangerous.
posted by theorique at 7:05 AM on August 6, 2015 [6 favorites]


Honest question; I know nothing about this subject: If Saudi oil is so much cheaper to extract (and I don't doubt that it is), then why are all the sources quoted in this article saying things that so unambiguously support its thesis that the country is looking at serious fiscal problems in the near future?
posted by Sokka shot first at 7:06 AM on August 6, 2015


If the oil futures market is correct, Saudi Arabia will start running into trouble within two years.

Yeah, this is an odd premise on which to begin the article. The "oil futures market" does not predict the future price of oil as the author seems to be implying. It's rather the market for contracts for delivery of certain grades of oil at future dates.

While Saudi Arabia is a dysfunctional, dictatorial rentier state with horrid qualities, it's a very rich one that can weather extreme fluctuations in oil prices. Not forever, forever, but for a quite some time.

Rising production of oil by unconventional means have certainly changed oil markets substantially. The biggest challenge Saudi Arabia and the OPEC states faces is a lessening of their global clout by just threatening to turn off the taps. They're no longer in a position to create a catastrophic shortage.

So their global power is waning, but by no means on the verge of being exhausted, and domestically they have a lot of room to run.

Citizens pay no tax on income, interest, or stock dividends. Subsidized petrol costs twelve cents a litre at the pump. Electricity is given away for 1.3 cents a kilowatt-hour. Spending on patronage exploded after the Arab Spring as the kingdom sought to smother dissent.

This right here is what you could call a heck of a lot of fiscal wiggle room.

Far from retrenching, King Salman is spraying money around, giving away $32bn in a coronation bonus for all workers and pensioners.

Yep, textbook rentier state. Experiencing a little dissent? Money for most, floggings for those who opt not to be paid off.
posted by mandolin conspiracy at 7:07 AM on August 6, 2015 [4 favorites]


My father rode a camel.
I drive a car.
My son flies in a jet.
His son will ride a camel.
-Saudi saying
posted by Pirate-Bartender-Zombie-Monkey at 7:07 AM on August 6, 2015 [53 favorites]


I remember the Bush II years when people were talking about $10/gallon gas from $140-200/barrel oil. Granted, we still have $3-4/gallon gas with oil as cheap as its been in decades, but, mainly, it seems tough to predict the future correctly.
posted by a lungful of dragon at 7:09 AM on August 6, 2015 [1 favorite]


Honest question; I know nothing about this subject: If Saudi oil is so much cheaper to extract (and I don't doubt that it is), then why are all the sources quoted in this article saying things that so unambiguously support its thesis that the country is looking at serious fiscal problems in the near future?

Well, their position as the global hegemon of hydrocarbons has been challenged by rising production elswhere, that much is true. They can't run crazy deficits forever, and they can't keep buying off the population forever, either. And if some catastrophic event like an ISIS-inspired revolution lands in their back yard, then all bets are off for the monarchy.

The chickens of an undiversified economy and a workforce whose jobs are primarily lavishly subsidized sinecures will eventually come home to roost in one way or another.

But it may be a while:

The operating cost (stripping out capital expenditure) of extracting a barrel in Saudi Arabia has been estimated to be around $1-$2, and the total cost (including capital expenditure) $4-$6 a barrel.
posted by mandolin conspiracy at 7:16 AM on August 6, 2015 [1 favorite]


Saudi Arabia could, theoretically, cut its expenditures and do well. Though, given that it would take Saudi Arabia a $106/barrel oil price to balance its budget, and the price of oil is about half that at the moment, those would be very severe cuts. Those thousands of princes would object to having their palace-building and luxury-shopping-expedition grants curtailed and being told to get jobs. The people below them, finding their subsidised food and electricity prices going up, would take it even worse. As for cutting defence, in the wake of the Arab Spring and with the rise of Islamic State (not to mention the possibility of popular unrest and/or local insurrections/coups organised by disgruntled princelings), that might also not be without problems.

So, chances are, we might see the end of the House of Saud (in its present form, at least) and the bizarre feudal anachronism that has been Saudi Arabia, a system with no place in the modern world save that afforded to it by its oil largesse. Perhaps it will reform itself, with the monarchy becoming a British/Dutch-style constitutional monarchy, some manner of democracy/technocracy replacing it in running the country, and some of the most opulent real estate abroad being sold to fund a massive training programme for its thousands of suddenly impoverished princes, attempting to turn them into financial analysts and Java developers overnight. Though parts of large systems have a way of remaining in denial and sabotaging reforms that threaten their own vested interests (witness, for example, the half-hearted reforms of the Romanov monarchy in the last days of pre-revolutionary Russia; or, indeed, the last decades of the Soviet Union). Chances are, the break will not be as clean, and things won't end well for a lot of people.
posted by acb at 7:16 AM on August 6, 2015 [4 favorites]


It is hard to wrap my mind about how stunning the fracking revolution has been. On an economic front, Metafilter had me freaking out over peak oil just a few years ago, a problem that has vanished in a shockingly short time. Yet, from the article, US fracking costs are falling by 30-50% a year(!!) and efficiency in water use and drilling times is only growing. It it is worth taking a second to admire the sheer scale of a revolution that turned our future from oil wars as something that would lead to inevitable apocalypse within a decade to, well, I guess being all drowned by rising seas a few years later.

For all the costs of fracking, it has fundamentally changed geopolitics in a way that I ever thought possible, take a look at the chart that shows that almost every major dictatorship needs oil prices that are unlikely to ever be so high again.

It shows how efficient market-driven innovation can be (especially when you socialize externalities).
posted by blahblahblah at 7:17 AM on August 6, 2015 [3 favorites]


I'm torn. I couldn't be happier that Saudi Arabia is fucked, but I really don't like cheap oil either. Let's do the clean energy thing and get the best of both worlds.
posted by entropicamericana at 7:30 AM on August 6, 2015 [5 favorites]


...the bizarre feudal anachronism that has been Saudi Arabia, a system with no place in the modern world save that afforded to it by its oil largesse.

That's a pretty apt description. An aunt and uncle of mine spent close to a decade living and working in Saudi Arabia. They called it "The Magic Kingdom."
posted by mandolin conspiracy at 7:31 AM on August 6, 2015 [2 favorites]


On an economic front, Metafilter had me freaking out over peak oil just a few years ago, a problem that has vanished in a shockingly short time. Yet, from the article, US fracking costs are falling by 30-50% a year(!!) and efficiency in water use and drilling times is only growing.

Yes, well, we're postponing peak oil and bumping up peak potable water.
posted by entropicamericana at 7:32 AM on August 6, 2015 [30 favorites]


Living in London, I wonder what the impact of the collapse of the Saudi economy/state will be on London's insane property market. Will other less exposed oligarchs (say, from the former USSR, or even the more diversified Arabian petro-states) seamlessly pick up the slack, buying superprime properties at a slight discount from their suddenly cash-strapped Saudi owners, or will there be a cascade of properties down the market, with the local lumpenelites managing to pick up what was once oligarch-grade real estate. Could it even burst the supposed bubble, causing a lot of sharp-elbowed house-flippers to suddenly lose everything?
posted by acb at 7:33 AM on August 6, 2015 [2 favorites]


Cry me a river.

But that's been occupied by Russia.

Falling oil prices mean trouble for them, too.
 
posted by Herodios at 7:35 AM on August 6, 2015 [4 favorites]


I couldn't be happier that Saudi Arabia is fucked

The problem is that Saudi Arabia is probably the most stable and powerful force in the Middle East, and a collapse of that regime would have huge impacts across the region and probably the globe.

Besides, they are the biggest US ally in the area, so I really doubt America would let the regime fall. There would be a huge influx of weapons and "advisers" first.
posted by backseatpilot at 7:39 AM on August 6, 2015 [2 favorites]


I couldn't be happier that Saudi Arabia is fucked

There are, you know, actual people that live in Saudi Arabia.

Incidentally, some of them were killed in a suicide bomb attack today. That's the kind of "fucked" that destabilization brings -- Al-Qaeda, ISIS, or who knows what next (especially in perhaps the most reactionary and conservative society in the Middle East -- no doubt mostly the fault of the regime). It's not a pretty picture, and not something, in and of itself, that I think we should be looking forward to. I don't like Saudi domestic or foreign policy either, and I greatly look forward to the end of all Gulf monarchies, but let's have some perspective...

Saudi Arabia is not just pampered, corrupt, spendthrift sheiks and guest workers. 30 million people live there.
posted by Noisy Pink Bubbles at 7:41 AM on August 6, 2015 [24 favorites]


Living in London, I wonder what the impact of the collapse of the Saudi economy/state will be on London's insane property market

I rather suspect this is why the London property market is bananas -- everyone is shifting their money offshore via real estate transactions, which are relatively easy ways to move chunks of cash with little oversight. An expensive London property becomes a safety deposit box of sorts.

...sooo, expect the London property market to go even crazier.
posted by aramaic at 7:43 AM on August 6, 2015 [3 favorites]


I imagine the much-hoped-for (by Republicans) War With Iran will resolve a lot of this.
posted by briank at 7:44 AM on August 6, 2015 [1 favorite]


Honest question; I know nothing about this subject: If Saudi oil is so much cheaper to extract (and I don't doubt that it is), then why are all the sources quoted in this article saying things that so unambiguously support its thesis that the country is looking at serious fiscal problems in the near future?
posted by Sokka shot first at 10:06 AM on August 6


Saudi Arabia essentially only has two industries: oil production (the largest) and tourism (Mecca). Yes, they have a construction industry and other "industries," but they all serve the interests of oil production. The Kingdom spends vast amounts to keep various political factions happy (of which there are many), and to maintain stability among the general population. Unfortunately for them, oil is the only thing they can really produce. When they maintained control of global oil prices through OPEC for years, the market share commanded by OPEC has been sliding since the 1980's as other countries have increased production through new technologies.

So they're caught in a bit of a death spiral. They need to keep up production to ensure oil revenues in order to provide funding to the state. However, increased production from OPEC will continue to push down prices. So they're getting way less-per-barrel than they used to, and those returns will only continue to decline as both the price-per-barrel declines and global production eats away at OPEC's market share.

Example
(I'm not an economist, so somebody should check my work):
Your household only makes income by selling apples from your apple tree. You have the only apple tree in your neighborhood, so you can charge high prices for your apples. This provides you with much more income than you would ever need. Instead of saving as much as you can, you spend most of it immediately on yourself and then next on food and shiny things for your family to keep them happy. They continue to expect these gifts, and you love your excess money. Especially spending it on yachts, gold plated Lamborghinis and other niceties.

But something starts to happen. Other people in your town see how much money you're making, and plant apple trees. Previously they couldn't do this, but new apple tree growing technology allows them to produce great apples. You (correctly) see this as a threat and you cut your annual supply. This causes apple prices to go up. Your income stays the same, but those other planted trees are growing and will one day bear fruit. Also, other apple tree growers are now even more incentivized to grow trees since prices are super high, and are hurting their budgets.

Lo and behold, the other trees bear fruit. At this point, there are more apples on the market than ever before and the price starts to go down. You're still one of the largest apple producers, but you're no longer the biggest. More apple trees come online. This pushes the prices down further, and also further diminishes your influence in the apple market for your town.

This is bad. Your only source of income is selling apples. But your family still demands food, their nice, shiny things and plenty of extra cash. They will get restless as they can't make any money on their own. You need to keep selling apples to keep money coming. Your annual budget is now at a deficit. You have cash reserves, but they won't last forever.

Also, exciting developments in your neighborhood! Your neighbors have always been extremely hostile to you, but now some bad MOFOs have moved in, and they love growing, eating and selling apples. Old neighbors you could rely on are even eyeing your apple tree. So you definitely need revenue not only for shiny things but also to protect yourself.

The end of the story probably isn't pretty, but we shall see. Until then, you'll enjoy your apples.
posted by glaucon at 7:47 AM on August 6, 2015 [3 favorites]


30 million people live there.

Interesting point on that - according to the IMF, a quarter of the population are actually guest workers.

The Gulf region will create about 600,000 jobs for nationals by 2019, but those jobs will provide work for only about a third of the youthful population due to enter the labor force, according to the International Monetary Fund.

[...]

Another proposal under discussion would force all shops to close at 9 p.m. in an effort to encourage more young Saudis to take jobs in the retail sector, which remains dominated by foreign workers. Stores’ current later closing times don’t allow youths to spend enough time with their family and friends.

Also, from the same WSJ piece...

“Today, they don’t ask for political rights, but what about in a decade or two?” Saudi columnist Jamal Khashoggi wrote in the local Al Hayat daily newspaper in January. Expatriate workers currently remain in the country on a residence visa that has to be renewed periodically; there is no program for citizenship.

Expatriate workers are currently about a quarter of Saudi Arabia’s population of some 30 million and about three-quarters of the private-sector workforce, of which 85% is deemed to be low-skilled, according to the IMF. Saudi nationals make up the majority in the government sector and are paid about $2,000 a month on average, nearly double the private sector.

posted by mandolin conspiracy at 7:56 AM on August 6, 2015 [4 favorites]


That's the kind of "fucked" that destabilization brings -- Al-Qaeda, ISIS, or who knows what next (especially in perhaps the most reactionary and conservative society in the Middle East -- no doubt mostly the fault of the regime)..
posted by Noisy Pink Bubbles at 10:41 AM on August 6.


This New Yorker article talks about the efforts of 5 American families to save their loved ones who were kidnapped by ISIS (4) and Al-Qaeda (1).

The part that surprised me was the conversation the Al-Qaeda guards, who no doubt weren't perfect kidnappers in terms of providing excellent facilities, care, food etc..., had with their captive about how they saw ISIS as willing to do anything and would "joke" with their captive about sending him to ISIS because "those guys are crazy."

The idea that the U.S. boogeymen from 10-15 years ago are being out-crazied by the new guys is startling to me.
posted by glaucon at 8:09 AM on August 6, 2015 [3 favorites]


> My father rode a camel

So the concept of “clogs to clogs in three generations” is global, then.
posted by scruss at 8:25 AM on August 6, 2015 [2 favorites]


The idea that the U.S. boogeymen from 10-15 years ago are being out-crazied by the new guys is startling to me.

Assuming that ISIS doesn't implode or fragment and isn't wiped out by military force, it will eventually find itself forced into the role of a stationary bandit, having to manage territory and care at least somewhat for the welfare of its wretched subjects (after all, one cannot govern a pile of corpses). Once it has diverted its energies from spectacles of extreme violence to sanitation, civil engineering, monetary policy, health care and other necessities, that will open up space for a splinter group to take over the extreme-violence side of things, undoubtedly accusing ISIS of being decadent and corrupt. And so on, ad infinitum, or at least until they run out of victims and/or combatants.
posted by acb at 8:49 AM on August 6, 2015 [1 favorite]


The House of Saud will be supported, because right now, we want them cranking out all the oil in the world. They're cranking out crude oil. The US is cranking out Natural Gas. This is not a US energy vs. Saudi Arabia energy. This guy is completely missing who this is about.

Who this is about is Vladimir Putin. The point of all of this production is to drive the price of energy down to make life hard on Russia. While it's true that Saudi Arabia's export economy is based on oil, it has other parts to its economy, but Russia's economy is almost *entirely* based on resource extraction. Basically, it's oil, natural gas, wood and metal, and that's about it. 80% or more of the Russian economy is resource based. Russia doesn't make much, it just provides materials and energy to make stuff. When Europe needed that energy desperately and only Russia had it, that put Russia in a position of power.

So, drive down energy prices, and you are driving down the Russian economy. This doesn't help things like the Norwegian Economy, but Norway has other things, and Norway was smart enough to realize that oil would go away, so they're doing fine. Western Canada has gone from Boom to Bust. But Russia is in hard times.

And yet OPEC and the US and everyone else keep pumping, and there are plenty of people making sure that they can, and it's all aimed squarely at Vladimir Putin. The worse his economy gets, the less he can do outside of Russia.

And with energy now cheap, Europe gets it from anywhere.

My prediction: Those taps get shut off the minute that Putin backs way down or leaves office.

Never mind what this is doing to the planet. Thinking things through is not our strong suit.
posted by eriko at 8:49 AM on August 6, 2015 [9 favorites]


When oil goes, it's going to be a nightmare.

OTOH, when oil goes, there won't be any reason for the rest of the world to politely tolerate their Wahhabist/Salafist ideology.
posted by acb at 8:50 AM on August 6, 2015 [5 favorites]


My prediction: Those taps get shut off the minute that Putin backs way down or leaves office.

If the taps keep going at their present rate, how long until Saudi Arabia's oilfields run dry (or become uneconomical to extract)? Could Putin conceivably wait them out?
posted by acb at 8:56 AM on August 6, 2015


My prediction: Those taps get shut off the minute that Putin backs way down or leaves office.
posted by eriko at 11:49 AM on August 6


The problem is that if they shut off the taps, they'll have a huge amount of workers that all of a sudden won't have work to do.
posted by glaucon at 9:02 AM on August 6, 2015


No problem. They simply unleash wave after wave of Chinese needle snakes.
posted by ROU_Xenophobe at 9:09 AM on August 6, 2015 [4 favorites]


Saudi Arabia's historical role has been the "swing producer" who could control prices by opening or closing their taps at will. If prices are low, it's still largely because SA wants them that way. eriko explains most of the story above, but I think there's also an element of squeezing Iran as well. There's also been speculation that they've been keeping prices low to discourage development of fracking in the US. Wheels within wheels.
posted by whuppy at 9:09 AM on August 6, 2015


I won't pretend to have a bird's eye view, but over the past few years I've been hearing of more and more ties between Saudi Arabia and European (occasionally, US) research institutions and universities. Research collaborations that come with funding, generous funding for EU research departments to host Saudi PhD candidates,* invitations to scientific conferences, etc. I've seen a few quite generous offers for English-speaking researchers to go across and research and lecture, as well.

So my uninformed but quite strong impression is that they (along with at least a couple of other countries in the region) are trying to rapidly establish a strong research and technology base, presumably to diversify their economy's income before the oil money runs out.

*To be clear, I'm NOT implying that these PhDs are being bought. I've got to know a few of these candidates and, with one particularly irritating exception, they're all very bright people who work hard and deserve to be there.
posted by metaBugs at 9:09 AM on August 6, 2015 [1 favorite]


Having no industry other than oil extraction
Although the oil industry comprises 75% of earnings tourism is the number 2 earner in KSA. Despite it being a country that only allows people in by invitation. Mecca is a bit of a mecca apparently
posted by rongorongo at 9:13 AM on August 6, 2015 [3 favorites]


What does oil do? Powers the world. What else can power the world? Solar power. How is solar power captured? Via photovoltaic cells made from silicon. What does Saudi Arabia have alot of? Silica in the form of sand, and sun.

It is hard to wrap my mind about how stunning the fracking revolution has been.
Yes. It's poisoning the soil and making the area around a huge supervolcano seismically unstable. In a few years, climate refugees from the coasts are going to have to move inland. Where will they move? To the site of a supervolcano, where the soil is poisoned.

I imagine the much-hoped-for (by Republicans) War With Iran will resolve a lot of this.
and
OTOH, when oil goes, there won't be any reason for the rest of the world to politely tolerate their Wahhabist/Salafist ideology.

Yeah, if the Saudis crumble and the sunni extremists get their mad-on for Iran's shiite extremists, US weapons manufacturers will profit tremendously, until the refugee crisis in Europe (Y'know for all the non-extremist muslims fleeing to somewhere that they won't get blown up or beheaded) gets heated enough that they have to start diverting weapons sales to NATO countries, and at a discount ('cause they're our allies, and 'special relationship' and WWII and blah blah blah) - then the market might tighten up a bit.

Honestly, this is all *hamburger*. You want honesty from me? This is alot like climate change: there are so many moving parts and so many unknown unknowns that I really just want to go, with Opus and Milo, for a dandelion break. It scares the absolute crap out of me how fragile, explosive, and short-timed this situation is. Obama's deal with Iran doesn't take away the threat of a Middle-East meltdown - the whole damn region is a nuclear weapon, with eight or nine fingers on the button.
posted by eclectist at 9:17 AM on August 6, 2015 [3 favorites]


They're cranking out crude oil. The US is cranking out Natural Gas. This is not a US energy vs. Saudi Arabia energy. This guy is completely missing who this is about. Who this is about is Vladimir Putin...

I disagree this is just about Putin. It is partially, but it is also about North America becoming a major oil exporter. Between increased deepwell production, tight oil, the oil sands, North America is getting close to petroleum independence, indeed going from importer to net exporter. The planned expansion into the Arctic wells, which are potentially even bigger than the tight oil plays.

And not just of oil, there are major plans for new LNG terminals in many parts of NA. Saudi doesn't export a lot of methane, but it's frequently a petroleum displacer, especially for electrical power plants.

Demand for oil in NA is worse than flat, it's shrinking. Western Europe and Japan are similar. China is in the middle of a financial restructuring, the result of years of growth. Indian demand is up, as are a few other parts of the world, but it hasn't been a great few years on the demand side.

Saudi is in a bind. Markets aren't growing as fast as they used to and unconventional sources, especially in North and South America, are starting to become really viable.
posted by bonehead at 9:20 AM on August 6, 2015 [2 favorites]


In addition to North American oil and gas, North American coal reserves are absolutely gargantuan, and are going to increasingly be available as a resource for conversion to synthetic substitutes for oil and gas, as the traditional employments for direct combustion are precluded by the high carbon emissions per BTU produced.

And don't forget the massive coal reserves (everywhere but the Middle East) that are being increasingly phased out from direct combustion for power generation and steel-making for environmental reasons. Coal conversion to synthetic substitutes for natural gas, diesel and gasolilne with acceptable emission ratios isn't economic with current technology versus $45/crude and $3/natural gas, but the technology will get (much) cheaper and, if nothing else, provide a ceiling on any spikes in crude and gas.
posted by MattD at 9:47 AM on August 6, 2015


glaucon: "Saudi Arabia essentially only has two industries: oil production (the largest) and tourism (Mecca). Yes, they have a construction industry and other "industries," but they all serve the interests of oil production."

This is sometimes called the "Resource Curse" or the "Paradox of Petroleum" -- counterintuitively, countries that are resource-poor tend to become wealthier nations, because they are forced to invest in developing human-capital-intensive industries and expertise in finished products. South Korea is the paradigmatic example, which invested heavily in education and in consumer product factories. Whereas Middle Eastern countries that have great oil wealth have a much harder time spreading those benefits -- selling a natural resource is "easier" than developing the more complex expertise and economy needed to create consumer products, and the size of the extractive sector tends to suck up all the talent and education in the country, so efforts to kick-start other sectors fail as they can't get good workers, can't get enough workers, can't get enough traction, have no political clout. And of course the nature of extractive industries is that you eventually run out of the thing you want to extract. Saudi Arabia is a paradigmatic case of this.

Natural resource extraction also lends itself to rentier economies and narrow elites who don't spread the wealth into the rest of the economy. Resource-extraction economies are often able to survive on the profits of that extraction and concentrate that money in a small oligarchy while providing some reasonable services to the rest of the country; resource-poor countries have to tax, and their taxes become increasingly broad-based, which leads citizens to demand representation, services, education, etc., or they refuse to pay; being resource-poor gives you democracy.

One of the questions political theorists find interesting is that there ARE some countries with major natural-resource extraction that have become very wealthy and diversified with modern service economies -- notably the US and Canada. So the question is, was that an accident of history (f'ex, the English and French tended to treat their colonies as more permanent settlements for emigrants; the Spanish and Portuguese tended to treat them as resource-extraction factories; or maybe industrialization just hit North America at the right moment for other reasons), a result of particular political structures or economic policies (are British-descended legal systems especially well-suited to developing modern economies?), or due to the fact that the US and Canada were both resource-extracting economies but because they were so very very large, extracted many DIVERSE resources (furs, timber, oil, coal, silver, gold), which never allowed talent and money to pool in a single industry and limited the "resource curse" and its associated poverty and collapses to smaller local areas -- Appalachia, gold-rush ghost towns, Yukon, etc. Another interesting question is looking at countries like Norway who already had modern economies but have more recent resource-extraction wealth and how they attempt to manage it in a stable way.
posted by Eyebrows McGee at 9:57 AM on August 6, 2015 [14 favorites]


Hm.

Saudi Arabia is in the throes of a crisis. The economy cannot keep pace with population growth, the welfare state is rapidly deteriorating, and regional and sectarian resentments are rising to the fore.

- Foreign Affairs, January 2004.

Another interesting question is looking at countries like Norway who already had modern economies but have more recent resource-extraction wealth and how they attempt to manage it in a stable way.

Norway's sovereign wealth fund is now approaching the trillion-dollar (US) mark in value. Its CEO has a fairly awesome name: Yngve Slyngstad

Curiously, in 1976, then-premier of Alberta Peter Lougheed put a similar scheme into place: the Alberta Heritage Trust Fund. Subsequent governments failed to contribute to it in the way initially intended.

As loathe as I am to link to a report by the *shudder* Fraser Institute, they argue that if Alberta had followed Norway's rules for contributing to it, it would be worth $121 billion (CDN) today vs. the roughly $10 billion it's currently worth (pdf).

Not that the Fraser Insitute would want any of that money put towards public infrastructure, health care, education or any of that socialist malarkey, but stopped clock, etc.
posted by mandolin conspiracy at 10:11 AM on August 6, 2015 [5 favorites]


We're going to have some resource problems of our own (in the US). Water is sparse in highly populated areas. Sure, fracking and pollution are making that issue worse, but the piper is calling...
posted by Chuffy at 10:13 AM on August 6, 2015


No problem. They simply unleash wave after wave of Chinese needle snakes.
posted by ROU_Xenophobe at 12:09 PM on August 6


But what do we do to take care of the snakes?
posted by glaucon at 10:42 AM on August 6, 2015


I really don't like cheap oil either.

What you should want is very cheap oil and very high gasoline and carbon taxes. Expensive oil only benefits the oil companies. Cheap oil and high taxes benefits everyone, especially if the revenues are used to build renewable energy sources.
posted by JackFlash at 11:00 AM on August 6, 2015 [6 favorites]


The House of Saud will be supported, because right now, we want them cranking out all the oil in the world. They're cranking out crude oil. The US is cranking out Natural Gas. This is not a US energy vs. Saudi Arabia energy. This guy is completely missing who this is about.

That's not right - 50% of US crude oil production, 4.9M barrels a day, come from fracking. The US produces more oil than the Saudis, and could produce a lot more very soon if prices go up. US net oil import are now below 1970s levels, it just doesn't export (yet), but it still effects the market price.

Saudi Arabia's price cut benefited US policy against Iran, Venezuela and Russia, but the main purpose of the Saudi price cut was to starve out US frackers. Instead it made them more efficient. Saudi Arabia may be able to produce lots of oil, but it needs prices at $80/barrel to sustain its budget.
posted by blahblahblah at 11:30 AM on August 6, 2015 [1 favorite]




main purpose of the Saudi price cut was to starve out US frackers.

And the Alberta oil sands producers. And US and Canada polar exploration which is all scheduled to happen in the next five years.
posted by bonehead at 12:09 PM on August 6, 2015


Counterpoint: Saudi Arabia faced similiar challenges in the late 1980s-1990s and they managed to find their way through it.
posted by humanfont at 12:20 PM on August 6, 2015


If the taps keep going at their present rate, how long until Saudi Arabia's oilfields run dry (or become uneconomical to extract)? Could Putin conceivably wait them out?

700 years of proven reserves at 10Mbbl/d.
posted by Talez at 12:32 PM on August 6, 2015


Counterpoint: Saudi Arabia faced similiar challenges in the late 1980s-1990s and they managed to find their way through it.

How did low oil prices in the late 80s influence the Kuwait War? I mean, I'm not sure where I'm going with this, but.. I guess you could say Hussein was pulling his version of Putin invading Crimea, or something?!? If somebody wants to write an article from this perspective, I'll read it :P

And is this inflation adjusted data accurate? 1999 was actually the all time low for oil prices?
posted by Chuckles at 1:18 PM on August 6, 2015


Shouldn't the OP read because of the "myth" of peak oil, since as we all know there are still huge... tracts of untapped sub oceanic reserves, tar sands, and even relatively easy land based reserves in Siberia? And really, shouldn't the Saudis have based their economy on a more reasonable $50.00 per barrel rate?
posted by Gungho at 1:26 PM on August 6, 2015


What does oil do? Powers the world. What else can power the world? Solar power. How is solar power captured? Via photovoltaic cells made from silicon. What does Saudi Arabia have alot of? Silica in the form of sand, and sun.

Is the availability of silica a major constraint on the production of PV cells? That seems pretty unlikely.
posted by atoxyl at 2:57 PM on August 6, 2015 [1 favorite]


I was being facetious. In fact, solar panels in the arabian desert seem like a good idea until you realize that shifting sands and blowing fine grit are rough on panels' maintainance. The margin is small enough that if you up the replacement times, it becomes a much less attractive investment.
posted by eclectist at 3:53 PM on August 6, 2015 [1 favorite]


It's hard to predict the future - particularly oil prices.

However, SA has taken in an incredible quantity of money over the last several generations, almost all of which it has squandered. It hasn't managed to create industry, train professionals or workers, or really do anything intelligent with the cash at all. It's hard to imagine that changing for the better, even when the price inevitably rebounds...
posted by lupus_yonderboy at 7:57 PM on August 6, 2015 [2 favorites]


Lupis thats a pretty typical stereotype of the Kingdom, but it isn't true. The Kingdom has a big soverign wealth fund witu diversified investments all over the world. The domestic economy is distorted by oil, but they have robust mining, industrial, construction and tourism and retail sectors in their economy.

The population has access to quality health care, electricity, housing and food. They have a high literacy rate and good universities with lots of citizens going on to advanced degrees.
posted by humanfont at 9:59 PM on August 6, 2015


Yes, they have a construction industry and other "industries," but they all serve the interests of oil production.

Fun fact: the reason why UBL was a billionaire (or at least his family was) is due to his highly-connected Father being a construction magnate during the rapid industrialization and development of KSA.
posted by theorique at 3:35 AM on August 7, 2015


Saudi Binladen is now headquartered in Dubai. The firm is a huge muli-national holding company with assets throughout the Middle East. The firm is a good counterpoint to lupis' argument that all the money and development has been squandered or wasted.
posted by humanfont at 1:30 PM on August 7, 2015


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