Much has been said about Saudi Arabia’s influence as the world’s top supplier of oil. (Really dedicated followers of crude, will surely now point out that Russia produces almost 2m b/d more oil than Saudi Arabia. But that is only because Saudi is keeping a lot of its output shut voluntarily to prop up prices – thus Riyadh and its vast production capacity is still very much number one).
But the kingdom not only influences the fate of the world’s oil consumers; it also holds power over the world’s other oil producers.
That is more than evident at this week’s Opec meeting, where several heavyweight oil ministers are missing and others have diminished their credibility by failing to adhere to their Opec quotas. Angola, which currently holds the group’s current presidency, is also its biggest cheater, having adhered to precisely 0 per cent of it agreed output cuts – not a great platform from which to lead.
Meanwhile Kuwait, which has almost fully adhered to its cuts, has a relatively new minister, as does Iran, Opec’s second largest member, which has enacted a paltry 5 per cent of its cuts. Meanwhile, Libya’s popular and long-time oil minister, Shokri Ghanem, is skipping the meeting and is expected to retire shortly.
This leaves few heavyweights around a table at which Ali Naimi, Saudi Arabia’s long-serving minister, already wields super-power status. But what makes Saudi Arabia supremacy among its Opec-brethren unmatched is its ability to turn on its oil spigots at any time. Every other minister knows that within days Riyadh could flood the market with all the oil it now holds in reserve. This would drive down the price so low that other countries would face such economic hardship that political unrest would be a real threat.
At the same time Saudi Arabia itself, having diversified its economy, kept its oil industry in excellent condition, and worked on spending its oil revenue wisely than it did in the 1970s, is far better placed to withstand a spell of ultra-low prices than many other Opec members.
To be sure, Saudi Arabia has not lately given anyone – consumer or producer – reason to worry. But just as the legacy of the 1970s oil shocks lingers in the minds of consuming countries’ politicians, Saudi Arabia’s decision in the 1980s to flood the market with oil to regain market share, stubbornly reminds Opec ministers gathering here in Vienna just how much they are at the mercy of Riyadh.