The End of Saudi Arabia's Oil Dominance

Only a miracle can make the oil meeting on April 17 in the Qatari capital, aimed at transforming the global oil market in favor of producers, a success. The very holding of this meeting indicates that the power dynamics in the international energy scene are changing. Its failure, which seems likely, will accelerate this transformation. The Doha meeting is primarily the brainchild of Saudi Arabia and Russia, two oil giants whose relations have soured over many issues, especially Syria, but they share a common goal: to prevent a further drop in the price of 'black gold.' These two powers organized the first oil meeting last February with several OPEC and non-OPEC producers in Doha and decided to freeze their production at January levels. The next meeting was initially scheduled for March 20 but was postponed to April 17 due to various difficulties. It is not surprising that Russia and Saudi Arabia, despite their severe tensions, have taken the lead in countering the fall in oil prices. All oil producers suffer from this decline, but none are as tied to this commodity as the leaders in Moscow and the ruling Saudi family. Vladimir Putin's Russia is deeply rooted in oil and gas, relying on raw material exports, along with a powerful military arsenal inherited from the former Soviet Union, which has been modernized primarily with oil dollars. In fact, the recent boom in the global oil market has allowed the Kremlin leader to strengthen his power in Russia through a relative improvement in the situation of his compatriots while simultaneously showcasing power in nearby (Ukraine) and distant (Syria) arenas to revive the influence of the 'Red Empire.' However, power based on the production and export of raw materials is inevitably vulnerable. The fall in oil and gas prices devalues the ruble, raises inflation, frustrates Putin's supporters, and severely reduces Russia's ability to flex its muscles here and there. Saudi Arabia also has a history and fate intertwined with oil, and with the instability of this commodity, its entire existence becomes unstable. Events after World War II turned this country into one of the pillars of the international energy system due to its legendary oil reserves and low extraction costs, a role that was significantly strengthened after the Islamic Revolution in Iran. In fact, with the weakening of Iran's oil power, Riyadh effectively gained undisputed dominance in OPEC, with production surpassing 10 million barrels per day, while Iran's production stagnated below four million barrels per day and even fell below three million barrels per day during sanctions. Based on this absolute dominance over OPEC, Saudi Arabia effectively became the 'orchestra leader' in the global oil market. This leadership role of Saudi Arabia in oil is now being severely questioned after about three decades. The fact that Riyadh alone cannot prevent the fall in oil prices and that Moscow must also be involved is one of the clearest signs of the erosion of Saudi power in the energy arena. Over the past three decades, Saudi oil power reached a point where it became known in international expert circles as the 'central bank' of the global oil market, similar to the roles played by the Federal Reserve and the European Central Bank in the global monetary scene. Just as the central bankers of these two powers control many macroeconomic indicators on an international scale by adjusting liquidity injections into the world's monetary arteries, Saudi Arabia also controlled the ups and downs of the global oil market through its massive production and control over OPEC's total output. It was due to this influence that every statement from Saudi oil ministers was scrutinized by international economic observers and became newsworthy. Various evidence indicates that Saudi Arabia's golden era in the global oil scene has come to an end. Even Riyadh's strategy over the past twenty months to confront the fall in global oil prices, which initially seemed coherent and very clever, now appears less convincing. It is worth recalling that after oil prices peaked above $110 per barrel, they began to decline in mid-2014. In response to this event, Saudi Arabia, contrary to its traditional approach, decided to maintain high production levels instead of reducing output and encouraging other OPEC members to do the same, even resorting to selling oil at discounted prices without expressing concern about the risk of further price drops. It seemed that Riyadh intended to hit two targets with this unexpected strategy, but given what is happening today in the global oil scene, it is clear that its calculations have not panned out: First, the Saudis were confident that with the drop in 'black gold' prices, shale or unconventional oil producers in the U.S. would soon exit the scene. Riyadh's calculation was that if oil prices fell below $60 to $70 per barrel, American competitors would not be able to cope due to their high costs and would inevitably leave the field to traditional producers. There is no doubt that with the collapse in oil prices, some shale oil producers exited the market. However, others continue to operate thanks to rapid technological advancements and reduced production costs. Moreover, the specter of shale oil now looms over the global oil market, as once prices rise above a certain level, the producers that exited will resume operations. In other words, Saudi Arabia can no longer assume its exclusive role as the 'central bank' of the global oil market. Second, another goal of Riyadh was to weaken Iran's position. The Saudis were confident that with the fall in oil prices, Iran's economy, already under sanctions, would sink deeper into difficulties, reducing its maneuverability in the Middle East. Additionally, by increasing its production, Saudi Arabia signaled to the West that it had the capacity to meet the world's oil needs and that if Iran remained sidelined and even saw its exports drop to zero, there would be no problem for energy consumers for a long time. Thus, Saudi lobbies in the U.S. that were working against the nuclear deal with Iran could add a new reason to their list of old arguments to persuade their audiences. Riyadh's second goal also failed. Despite extensive Saudi lobbying in the U.S. and mobilizing hardline factions in both Tehran and Washington, the Joint Comprehensive Plan of Action (JCPOA) was signed, paving the way for Iran's return to the global oil scene. However, this does not mean that the path is clear for the reconstruction of Iran's oil industry. Anti-JCPOA forces in the Islamic Republic are very active and strongly oppose any form of 'normalization' in Iran-West relations. The issue is that if Tehran cannot create the necessary environment for massive foreign investment in Iran, especially in oil and gas fields, the increase in production and especially achieving a daily production of five million barrels of oil within the next five to six years will not be feasible. Saudi Arabia wants exactly this, and anti-JCPOA hardliners in Tehran are also working in this direction. But there is no reason to believe that practical cooperation between Riyadh and Tehran's hardliners to continue Iran's isolation will necessarily succeed. The failure of Saudi Arabia's strategy to achieve the above two goals has forced Riyadh's leaders to revert to their traditional policy of controlling supply, with the difference that this time several non-OPEC countries, especially Russia, have also entered the fray. The Doha meeting, scheduled for April 17, is the most significant manifestation of Saudi Arabia's changing strategy and indicates that little remains of this country's oil power. This time, as with the previous Doha meeting, the participants aim to reach an agreement on 'freezing' or stabilizing oil production at January levels. Many oil-producing countries, both OPEC members and non-members, will participate in the Doha meeting, but all eyes are primarily on Bijan Namdar Zanganeh, Iran's oil minister, who has stated that he will attend the meeting 'if time permits.' He has repeatedly emphasized that he is not willing to have Iran's oil production curtailed in the name of 'freezing.' Riyadh's leaders have also stated that there will be no 'freeze' without Iran's participation. In this context, whether Bijan Namdar Zanganeh goes to Doha or not, he will be the most newsworthy figure at the April 17 meeting. For Russia and Saudi Arabia, the Doha gathering could also turn into a 'meeting for nothing.'