“There is no intention” in Saudi Arabia of imposing a 1973-style oil embargo on the West, Energy Minister Khalid al-Falih told TASS in an interview in response to a question citing predictions that the Kingdom may cut its supply of crude for global markets by half a million barrels daily because of the tensions that arose following the disappearance and death of dissident journalist Jamal Khashoggi.
“Our government through political channels is addressing this issue. But Saudi Arabia is a very responsible country, for decades we used our oil policy as responsible economic tool and isolated it from politics. So lets hope that the world would deal with the political crisis, including the one with Saudi citizen in Turkey, with wisdom,” Falih told TASS.
Khashoggi’s disappearance and the subsequent statement from Riyadh that he had indeed died at the Saudi consulate in Istanbul pitted the two allies, the United States and Saudi Arabia against each other, with several U.S. lawmakers insisting on penalties against Riyadh. Earlier this month some called for sanctions against Saudi Arabia, which prompted a response along the same lines, with an unnamed government official from Riyadh telling Saudi media that they will respond to any sanctions with “bigger measures.”
Naturally, everyone’s first thought in this context would be of the 1973 Arab oil embargo that followed Israel’s victory in yet another war and that unveiled the West’s heavy dependence on Middle Eastern oil.
As for the worry around global supply, after an internal OPEC document seen by Reuters revealed the cartel is finding it hard to boost production quickly enough, Falih said Saudi Arabia will soon hit the 11 million bpd mark and could raise it further to 12 million bpd, but that would be the maximum. “We have relatively limited spare capacities and we are using a significant part of them,” the official said.
By Irina Slav for Oilprice.com
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This obviates the need for Saudi Arabia to retaliate. That is why the Saudi oil minister Mr Khalid al-Falih said that his country has no intention of retaliating with a 1973-style oil embargo on the West.
At first, President Trump threatened Saudi Arabia with severe punishment if it is proven that the journalist was killed at the consulate. But when Saudi Arabia threatened to retaliate with stronger measures against any US punishment, President Trump started to back track by floating the idea that “rogue killers” might have been behind the murder of the Saudi journalist.
Were this to happen, Saudi Arabia would retaliate forcefully against any US punishment on it. By cutting its oil production drastically, it could push oil prices far above $100 a barrel and accelerate the use of the petro-yuan for its oil exports, something that is going to happen anyway. The biggest casualty could be President Trump’s Republican Party in the mid-term Congressional elections in November. Another measure is that the Saudis could refuse to compensate for any possible loss by Iran oil exports resulting from US sanctions though I am on record having been saying for the last ten months that based on market realities, US sanctions against Iran are doomed to fail miserably and Iran will not lose a single barrel from its oil exports.
President Trump stopped short of threatening the cancellation of US arms sales to Saudi Arabia estimated at more than $100 bn annually because he knows that these could easily be replaced by Russian arms which are as sophisticated as US arms and cheaper.
However, Mr al-Falih’s claim that Saudi oil production will soon hit the 11 million barrels a day (mbd) mark and could rise further to 12 mbd is a myth. Saudi Arabia couldn’t raise its oil production beyond the 400,000 barrels a day (b/d) that it added to the market two months ago. And even these 400,000 b/d did not come from a rise in production but from stored oil on board oil tankers and on land.
And with the failure of the talks between Saudi Arabia and Kuwait to agree to restart the oilfields in the Neutral Zone which is shared equally between them, Saudi Arabia has lost the opportunity to add 250,000 barrels a day (b/d) more to the market on top of the 400,000 b/d it already added two months ago.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London
Moreover, despite all the Anglo/American crcodile's tears-gerking over the murder of Jamal Khashoggi. One thing is absolutely crystal clear: Washington & London may well do try to wash their hands of decades of Saudi crimes, but both international court of public opinions & history shall continue to be watching them!