By Bernard Haykel, Professor of Near Eastern Studies at Princeton University | Thursday, June 11th, 2020
Saudi Crown Prince Mohammed bin Salman, having realised that Saudi Arabia has a narrow window of opportunity to monetise its oil reserves, has embarked on a policy of capturing market share rather than trying to set oil prices
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 ban
d 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 monetise 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 long-standing 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.
Saudi Arabia has well over 50 years’ worth of recoverable oil reserves; most of that will become a stranded asset if it is not produced more quickly