Saudi Arabia’s Radical New Oil Strategy
Although Saudi Arabia's recent decision to hike oil production coincided with the broader COVID-19 crisis, it reflects a broader and more fundamental strategic shift led by Crown Prince Mohammed bin Salman. With a global clean-energy transition inevitable, MBS is desperate to cash out while the Kingdom still can.
PRINCETON – Saudi Arabia’s recent decision to crank up oil production represents a dramatic shift in its thinking about energy markets and its own reliance on oil revenues. Gone are the days when Saudi oil reserves were prudently managed for future generations. By no longer maintaining a specific oil-price band or retaining spare production capacity, the Kingdom is stepping away from its longstanding role as the market’s swing producer.
The change reflects Crown Prince Mohammed bin Salman’s (MBS) view that Saudi Arabia has a relatively narrow window of opportunity to monetize its large oil reserves. He has embarked on a policy of capturing market share rather than trying to set the price, once again breaking with longstanding policies that he believes are no longer useful.
If MBS persists with this strategy, he could significantly alter the dynamics of global energy markets. By keeping prices depressed, Saudi policy will not just drive more expensive forms of oil production out of the market; it will also make it harder for renewable energy to compete with fossil fuels – at least in the near term.