Petroleum Rivalries Turning OPEC Upside Down……….

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Saudi Arabia’s government spending, flat since the last oil boom in the 1970s, is now rising at 10 percent or more annually. And it will rise faster still: The House of Saud’s survival instinct in the wake of the initial Arab revolutions led King Abdullah to announce $130 billion of largesse in February and March. The resulting increases in government employment and salaries can be cut only at the cost of more discontent. And that’s only what the kingdom is spending on its “counterrevolution” at home. Saudi Arabia will pay the lion’s share of the pledged $25 billion of Gulf Cooperation Council aid to Bahrain, Egypt, Jordan, and Oman. With Iraq, Syria, and Yemen likely flashpoints yet to come, the bill will only increase. Already, nearly a third of the Saudi budget goes toward defense, a proportion that could rise in the face of a perceived Iranian threat. Meanwhile, fast-growing domestic demand poses a serious threat to oil-export revenues. The kingdom is one of the world’s least energy-efficient economies: With prices fixed at $3 per barrel for power generation and $0.60 per gallon of gasoline, Saudi Arabia needs 10 times more energy than the global average to generate a dollar of output. Subsidized natural gas, too, is in short supply, undermining an economic diversification drive focused on petrochemicals. As much as 1.2 million barrels per day (bpd) of oil are burned for electricity to meet summer air-conditioning demand, yet Jeddah, Saudi Arabia’s second-largest city, still suffers frequent power cuts………This combination of higher spending and lower exports shortens Saudi Arabia’s time horizon. Usually considered, on shaky evidence, to be a “price moderate” within OPEC, the kingdom now requires $85 per barrel to balance its budget. That figure will rise to $320 by 2030………

The problem
for the Saudis is that long before the year 2030, both Iran and Iraq would have resumed full control of their oil fields. Iraqi and Iranian outputs have been disrupted by thirty years of war and revolution and Western sanctions, but that era of instability will end soon. Both countries threaten to overtake Saudi Arabia as OPEC’s main producer and possibly as ‘swing’ producers. Both have huge untapped resources and unconfirmed reserves (thirty years of instability takes its toll). Then there is Venezuela, which OPEC recently declared now has the largest oil reserves, surpassing Saudi Arabia. It is almost certain that within a decade from now the heavy weights in OPEC will be three ‘ornery’ republics in addition to the Kingdom without Magic.