According to the 2018 BP Statistical Review of World Energy, in 2017 Saudi Arabia produced 12 million barrels of oil per day. That accounted for 12.9% of the world’s oil production, which is in the range of the world’s two other major oil production superpowers — Russia and the U.S.
However, there is an important distinction when it comes to Saudi Arabia. In Russia, oil production is concentrated among a dozen or so companies. In the U.S., thousands of companies acting in their own self-interest produce oil. But in Saudi Arabia, all of the oil production is controlled by Saudi Aramco, the state-owned oil company and reportedly the most profitable company in the world.
Given that Saudi Arabia’s share of oil production is well beyond the spare production capacity of the world’s most important commodity, Saudi Arabia has incredible economic power. All Saudi Arabia would have to do is withhold three or four million barrels of oil per day from the market, and prices would quickly rise above $100/barrel.
Some analysts have floated the idea of oil prices getting as high as $200 or even $400/bbl in the event of a disruption in Saudi’s petroleum output. That may seem preposterous, but keep in mind that during the 1973 oil embargo, oil prices quadrupled in about six months. Prices like that would quickly push the global economy into recession, as it helped do in 1973. That is the power Saudi Arabia holds.
Consider the oil price movements since 2014. Oil prices plunged because Saudi Arabia sought to win market share back from the shale oil producers. So, OPEC flooded the market with oil, which sent prices down by over 70%.
Then, when they decided that experiment wasn’t working, Saudi Arabia convinced OPEC and Russia to cut oil production to support prices. Oil prices doubled. Just this week oil prices fell by 5% after Saudi Arabia said it would cover any supply disruptions from the sanctions on Iran’s petroleum exports.
No other entity in the world has as much power to move the oil markets. Saudi Arabia could quickly bring the global economy to its knees.
Thus, as the world debates a harsh punishment for Saudi Arabia over the killing of journalist Jamal Khashoggi earlier this month, they really hold the trump card. $100 billion in potential arms sales is small potatoes considering the havoc Saudi Arabia could unleash if it decided to use oil as an economic weapon.
This is just one price we pay for our dependence on oil. Global economic security will continue to depend strongly on the cooperation of Saudi Arabia.