Saudi government officials like talking to the media about oil. They invariably come across as upbeat, confident that the OPEC deal will achieve its goal of shrinking the global oversupply, and equally confident that U.S. shale will not seriously eat away at their oil revenues, however fast it grows.
The general message seems to be: We can handle everything. Behind the scenes, however, things look differently, Time reports, citing former and current U.S. government officials with experience in the Kingdom.
Following an interview with Crown Prince Mohammed, in which he anticipated a bright future for crude oil thanks to new strong demand, Time talked to several U.S. officials who shared their concern about how realistic this view of the industry actually is.
In fact, these officials believe Saudi Arabia is still overdependent on crude oil, and this could spell trouble for the barely contained powder keg that is the Middle East—a ripple in crude oil would likely set the region all ablaze. What’s more, they say, Saudi Arabia is still unable to make ends meet, even at the current higher oil prices. If prices fall and its deficit deepens further, the Kingdom would be hard pressed for an urgent change in its heavily subsidized economic model. There is even a danger of the economy crashing, one U.S. official said, and should this happen, chaos will ensue. Related: Escalating Trade War Ups Pressure On Oil Prices
It is possible that Saudi officials are downplaying some very real threats to all the ambitious economic reform plans initiated by Mohammed bin Salman. However, it seems difficult to gauge the importance of these threats when Saudi sources are often at opposing ends of the opinion spectrum. Some, U.S. officials say, are adamant that everything around the reforms is proceeding smoothly. Others are equally adamant that the Kingdom is running on fumes that will soon evaporate.
In any case, there is some concern about what the future holds for Saudi Arabia and that was summed up perfectly by the Council of Foreign Relations’ energy security and climate change program director, Amy Jaffe. “If they’re talking about it,” she told Time, “they’re worried about it.”
By Irina Slav for Oilprice.com
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