Saudi Arabia has been known for decades as a “global swing oil producer,” able to quickly increase or decrease oil flows to drive global oil prices higher or lower, respectively. Riyadh has long championed the idea, with big claims about the kingdom’s crude oil reserves and resulting excess capacity. After two key oil facilities were hit by rockets fired by the Iran-backed Houthis in 2019, it also became clear that the ability to recover from such shocks was also much faster. So, with the world facing ever-rising oil prices as the current US/Israeli-Iran war continues, what can these global oil powers actually do to break them?
Given Iran’s targeting of Saudi Arabia’s Ras Tanura refinery last week — the kingdom’s largest, with a capacity of about 550,000 barrels of crude oil per day (bpd) — the immediate question is how quickly the country could respond to a successful attack on its critical oil infrastructure, as it saw in 2019? In the recent attacks on Ras Tanura, several drones were intercepted, although the oil refinery was temporarily shut down as a precaution, but it and other refineries will be in Iran’s sights for further attacks nearby. At the time of the 2019 Houthi attacks on Saudi Arabia’s Abqaq and Khares oil processing units, as detailed in my recent book The New Global Oil Market Order, the two facilities together represent about 50% of Saudi Arabia’s oil production, or about 5% of the world’s oil.. After the rocket attacks on them, international oil prices rose by up to 20%.
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The lessons in the immediate aftermath of the 2019 attacks were surprising in many respects for oil traders and analysts alike. First, Saudi Arabia’s new oil minister at the time (and still in office), Prince Abdulaziz bin Salman, said the kingdom planned to bring its “production capacity” to 11 million bpd by the end of September and regain its “full capacity” of 12 million bpd two months later. As a senior oil industry analyst based in London specifically put it OilPrice.com At the time: “Saudi’s statements may not be outright lies, but they are not entirely filled with truth either.” He added: “It is very telling that he talks about ‘capacity’ and then ‘supply to the market’, because these are terms that Saudi Arabia uses to avoid talking about actual production, because capacity and supply are not the same thing as actual production at the wellhead. He concluded: “What Saudi Arabia is trying to do is protect its reputation as a reliable supplier of oil by not revealing the true picture, especially For our target customers in Asia, we should take all these statements with a large grain of salt.”
The truth, as revealed exclusively by OilPrice.com at the time, and fully explained in my book on the new global oil market configuration, is that these comments seek to remove from the world’s leading oil figures that Saudi Arabia is always looking for a project, for the simple reason that their only power in the world is to get for this major oil sector, so it is considered the best for Riyadh. So, on the first claim that Saudi Arabia has a production capacity of 11 million bpd: the average crude oil production from 1973 to 14 September 2019 is only 8.151 million bpd. It has never produced near 12 million bpd and has only briefly averaged 11 million bpd once – 11 million bpd in November. Little changed since then, Saudi Arabia’s average crude oil production from 1973 to yesterday’s close of trade was 8,303,070 bpd.
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The figures also indicate that an additional 12-13 million bpd of additional capacity by Saudi Arabia by then is also a fanciful thought. In fact, as one senior Geneva-based oil trader exclusively told OilPrice.com: “If the Saudis really had that barrel surplus, they could have used it to drive down prices in the 2014-2016 war for survival with the United States, but they didn’t.” Technically, the Energy Information Administration defines ‘spare capacity’ specifically as generation that can be brought online within 30 days and continues for at least 90 days. Even Saudi Arabia has admitted it needs at least 90 days to move rigs to drill new wells and increase production in any meaningful way. According to a source in London, after the attacks in 2019, Riyadh ignored the problem by using different tactics. “The Saudis have reduced supplies to their domestic industry and reduced the amount they send to domestic refineries – with one major refinery, SASREF, easily meeting its planned maintenance at the start of the year.” “The Saudis have also been aggressively buying Iraqi oil through brokers, which is close to the level of Saudi exports, which is somewhat ironic because most of this Iraqi oil is actually Iranian oil, which was the organizer of the attacks against them in the first place,” he added.
It would not be surprising if the fantastic claims about Saudi Arabia’s crude oil reserves were widely overstated, as detailed in my recent book The New World Oil Market Configuration. In particular, in early 1989, Saudi Arabia’s claimed proven oil reserves were 170 billion barrels, but just one year later — without the discovery of large new oil fields or major confirmed reassessments of reserves in existing fields — the official estimate had increased by some 51.2% to 257 billion barrels. Shortly after that, and again without any major discoveries, Saudi Arabia’s proven reserves increased to just 266 billion barrels, and it rose again to 268.5 billion barrels in 2017. During the period when the increase was announced, the country was producing an average of 8.162 million bpd. Therefore, from 1990 (the year Saudi Arabia’s claimed proven oil reserves rose from 170 billion barrels to 257 billion barrels), to 2017 (the year Saudi Arabia claimed proven oil reserves of 268.5 billion barrels), the kingdom physically removed an average of only 29 billion barrels of oil from the ground each year. From the beginning of 1990 to the beginning of 2017, the total amount of crude oil was 80.43 billion barrels. Briefly, from 1990 to 2017, Saudi Arabia’s official crude oil reserves number reached 98.5 billion barrels, despite the lack of new oil discoveries and the physical removal of 80.43 billion barrels forever.
Of course, Washington knows all this and knows that Riyadh’s ability to help lower oil prices by increasing its production is absolutely zero. According to him, Saudi Arabia has been slated for some time to play a key role in Trump’s vision of the Middle East, a post-Islamic-Iranian militant world. The broad strategic foundation for this world is the resumption of normalization of relations between key Arab countries and Israel, brokered by the United States. These “Abraham Accords” were launched during Trump’s first term as president, with the United Arab Emirates becoming the first major Arab country in the Middle East to sign in August 2020. This, in turn, follows the Trump administration’s announcement of a unilateral US withdrawal from a plan to counter the expanding influence of China and Russia across the region. (JCPOA, the May 2018 ‘nuclear deal’ with Iran), as detailed in my recent book. Trump’s ouster in 2021 derailed the plan led by the Abraham Accords, resulting in an accord between key Shiite power Iran and key Sunni power Saudi Arabia to resume unusual ties on March 10, 2023 – brokered by China.
However, Trump has made it clear during his campaign for his second term that he favors re-opening, including the Abraham Accords between Israel and Saudi Arabia. The U.S. hope was that Saudi Arabia — Iran’s longtime rival in the region — might publicly express its support for an initiative to normalize relations and eventually strike such a deal itself after the current crown prince, Mohammed bin Salman, ascends the throne. This is largely consistent with the view that he was more sympathetic to the consensus than his father, King Salman. In signs that a similar deal would be struck with Saudi Arabia, then-Saudi Foreign Minister Prince Faisal bin Farhan cautiously welcomed the agreement between Israel and the United Arab Emirates, saying, “It can be seen as positive.” It is also worth noting that in 2002, it was the Saudis who launched the “Crown Prince Abdullah Peace Plan” during the Beirut Arab Summit and proposed full recognition of Israel in exchange for a return to the pre-1967 borders.
By Simon Watkins for Oilprice.com
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