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The Implications of Saudi Arabia becoming a Net Oil Importer

By Ian Nunn | Mon, 10 September 2012 22:46 | 4

Ambrose Evans-Pritchard, wrote last week in The Telegraph, Saudi oil well dries up. He presented the following chart of projected Saudi oil consumption, vertical bars, and production, dark blue line.

Saudi Arabian Oil Consumption and Production

By these estimates, in 2022, Saudi Arabia will no longer be supplying oil into global demand but will be competing in global demand for foreign oil. Long before we reach the trade-off point, however, certain exigencies will emerge.

First consider the area on the chart between the two curves. This area is highly correlated to their balance of trade and their foreign exchange reserve acquisition. The website Suite 101 states that [t]he petroleum sector accounts for more than 90% of the Middle Eastern country’s exports. If the two curves are at all representational of what is to come, then it should be noted that they are exponential. The implication is the positive Saudi economic position is decreasing exponentially, doubly so between two diverging exponential trend lines. After 2022, their economic position will deteriorate at the same exponential rate.

But this is linear thinking. The strains of a deteriorating economic position will begin to manifest in the economy long before the crossover point is reached. The Saudi’s have been using a large part of their oil wealth to finance internal social programs to pacify a restive young population through subsidized employment. When these programs can no longer be supported the resulting social unrest may lead to revolution and the overthrow of the Saudi Monarchy.

The other aspect of the use of their wealth has been to support other countries and organizations against Iran and Shiite fundamentalism in the Middle East in the age-old Sunni/Shiite sectarian battle. As Saudi influence wanes through the loss of economic power, Iran with its huge oil reserves, may be just ramping up. The result will likely be a shift in the balance of power in the struggle, impacting the entire Middle East.

With respect to oil itself, if Saudi production is not replaced, then the Saudi supply/demand curve becomes global. Oil prices will respond accordingly and global economies will slow in relation to escalating oil prices. If Saudi production is replaced, then there will be a global shift of balance of trade from the existing failing producers to the new producers. This will have geopolitical implications as well.

By. Ian Nunn

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Mon 10 September 2012
The Implications of Saudi Arabia becoming a Net Oil Importer

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  • Hans Nieder on September 11 2012 said:
    Don't you love those charts where the flow show a neat gradual increase, year after year...

    Only an artist could appreciate such a wonderful confluence...

    These charts should be view with a great deal of suspicion, as they remind me of similar 1980 projected oil imports for America...
  • Mel Tisdale on September 12 2012 said:
    @ Hans Nieder

    They are projections, therefore they are almost bound to be smooth. The article states that "certain exigencies will emerge." Without a date, all that can be assumed is that they "will emerge" sometime and action taken in response whenever they do.

    A major point that the article discusses, namely the increasingly tenuous nature of the Kingdom of the House of Saud, is one that one avoids at one's peril. There is a current of change flowing throughout the region and there is no reason to suspect that Suadi Arabia should be be affected at some time in the near future.

    Perhaps the most important question is: Where would a termination of Saudi oil exports leave Iran in terms of area dominance? Methinks there might be trouble brewing and I'll bet that America will not be far from all the action.
  • Hans Nieder on September 14 2012 said:
    Mr Tisdale, yes, the Royal family will have to make some important decisions.

    One action will certainly be to raise the current price of about .60 cents per gallon, which will dampen demand.

    If petrol is more in line with world retail price, one would expect to see a significant reduction in consumption...

    Besides, I am quite positive there is much more crude beneath the surface...
  • Joe on October 17 2012 said:
    This graph clearly projects Saudi Arabia needing to import oil starting in 2032, not 2022. The downward sloping line isn't supply, it's net exports. You read the graph thinking the downward sloping line was supply... if so how could it go negative? (that, and it's labeled too). Most people looking at a graph like this would expect it to be a demand v supply over time curve, and I had to do a double take myself. Point taken though... I guess we have 20 years to get LNG cars happening instead of 10.

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