Writing in MEES, a Middle East oil and gas weekly magazine, Saudi finance expert Dr. John Sfakianakis says that the transfer of power from King Abdullah to King Salman is likely to represent a continuation of Saudi oil policy, particularly with respect to production levels.
“The passing of King Abdullah and the advent of King Salman is a time of continuity in the Kingdom’s oil policy not a time of radical change,” writes Sfakianakis. “The kingdom no doubt has made a bold bet that it can maintain its output without jeopardizing either the stability of the oil market or its own long-term economic well-being. Such a risky move can be made only by a country that has finances as strong as Saudi Arabia’s. Its motives are also supply-oriented as a lot of non OPEC oil was gaining market share.”
“However, intergenerational equity issues and the gradual depletion of reserves would doubtless be in the minds of these technocrats. Certainly spending it all in a short period of time would not be wise. The bet, however, is predicated on a pick-up in economic activity throughout the emerging and developed world,” Sfakianakis writes.
“Many have argued that the days when Saudi Arabia was the linchpin of the oil market are over, but, like it or not, the reality is that the kingdom remains the producer of last resort. What ultimately explains Saudi behavior is a lot more prosaic than we have been led to believe: the Saudis are still haunted by the painful experience of the 1980s when they cut production, only to see oil prices plummet from $35 to below $10. They’ve made it clear they are not about to go down that path.”
[Click HERE to download the full commentary by Sfakianakis in MEES (.PDF)]
