While I agree with Nicholas Kristof’s detestation of the Saudi regime and admire his courage in actually going to Saudi Arabia and attempting to gauge public opinion there, as reflected in his latest New York Times column, that an individual as intelligent and well-informed as he should be could possibly write the following:
The truth is that as Saudi Arabia’s significance as an oil producer diminishes, we need Saudi Arabia less. In 25 years, if we’re freed from the tyranny of imported oil, we may not need it at all.
staggers credulity. Saudi Arabia’s influence over the price of oil would not end if we imported no oil at all. We actually import relatively little oil from KSA but we have notional allies who are largely dependent on Saudi oil and will remain so for the foreseeable future. But the Kingdom’s significance is not limited to imports. They along with the other Gulf states are the low cost producers of high quality oil.
And to understand the full scope of that impact look up how polyester is produced, in particular purified terephthalic acid (PTA) and mono-ethylene glycol (MEG), both byproducts of oil refining. Look up where and how it is used.
Unless you envision an authoritarian United States with a command economy, being “freed” from Saudi and Gulf state tyranny will not be accomplished in our lifetimes. It would take character and determination, both in short supply in American politics. Do not hold out objectives we cannot achieve or, as an ancestor of mine put it, do not set the fence too far. We must choose not to support the truly dreadful Saudi regime and cope with the consequences rather than hoping the consequences will go away enough to make refusing to support them less painful.
Yes, the Kingdom’s oilfields have the best energy return on investment in the world, so one way or another we will pay a price for severing relations. We should accept the price, because we’re paying an even heavier one for every minute we continue on the current path.
That is my view.
We can’t muster the resolve to deal with the messiness of correcting poor past trading practices with China, or ridiculous environmental initiatives, without politicians, pundits, media and numerous other interests wailing, much for political ends.
We are going to inflict pain not only on ourselves, but others in the world over Saudi Arabia? A noble goal, but no chance. Just no chance. We should pursue an aggressive energy policy full speed ahead here, reduce SA’s leverage, and then make our move. A quick move is just not feasible.
The US produces mostly low sulphur (sweet) oil, and it is best for fuel products. The Middle East produces mostly high sulphur oil (sour), and it is best for plastics.
The US has a surplus of sweet oil and shortage of sour oil. The US can sell the excess to other countries as oil or fuel. Prohibiting overseas sales, affects domestic fuel prices and US oil production.
Oil prices are bought and sold on the futures markets, and the price is determined by future demand. The spot price is based upon current demand.
As opposed to speculation with other products, especially the financial kind, oil has a delivery date, and unless the speculator can store the oil in his/her spare bedroom, it must be sold or stored. So, storage costs and the spot price affect the price as well.
With low oil prices, OPEC and the Saudi’s are less able to affect the price of oil. First many of the OPEC countries have budgeted for higher priced oil, and they try to make up the shortage with blackmarket sales.
In addition to the blackmarket, the oversold market affects prices as well. When demand is rising, it is easy to get prices to increase quickly, but when they drop below the production, it is more difficult.
In the future, OPEC and the Saudi’s may have a larger affect on the price, but presently, they are at the mercy of the futures market.
I think it’s a myth that we need the Saudis because of their oil or that Saudi oil production hinges on the US not pissing off the KSA. The fact is that the Saudis are the ones who need to sell the oil and that is basically most of their economy. So the notion they will stop selling if we are no longer their BFF is wrong IMO.
What the US really wants is market stability. I think the real deal is that we know (or believe) the Saudi’s are weak and we support them to keep their internal politics stable, which keeps the market stable. So the risk in abandoning the KSA is that they might implode like Venezuela, or they might have a civil war or a coup or any number of other bad (for them) things that would make the oil market go crazy.
Personally, I think that time has passed and the KSA should find its own way in the world.