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Edging Closer To the End of OPEC, and the Saudi Arabian Kingdom

Despite the massive decline in oil prices, Aramco, Saudi Arabia’s government-owned Oil Company has continued to insistently extract crude oil at a record rate. For maintaining its market share of oil, it has forced oil prices down to lower than $30 per barrel. Obviously, the goal of the Saudi Kingdom is to discourage up-and-coming oil producers in the United States, where new technologies and oil discoveries have allowed private producers to add needed jobs while reducing long-standing dependency on foreign sources of oil. But the Saudis, an extremely big and the strongest member of OPEC, are acting in an unreasonable manner in the global market. 

With independent power over 11-12 million barrels of oil production per day, the Saudis are escalating the threat of political and social strife in all the countries that depend on oil for their survival including Venezuela, Russia, and even Saudi Arabia itself. While the former two regimes have not sympathy for the United States, the measures of the Saudi Kingdom have done no one any good including Saudi Arabia itself. Because of its unreasonable attitude, it ultimately risks civil conflict and calls for democratization within the Kingdom. Essentially it risks the end of the Kingdom itself because that is the law of inadvertent consequences.

With oil prices falling below $55 per barrel, the Saudi Arabian economy will simply deteriorate.  When prices decline substantially, the Saudis will not be able to finance their payrolls and social programs. While putting on a brave before the international community, the Saudis have started raising the price of gasoline by 50% and bringing about a reduction in its social programs. They will also start levying taxes on the population. The government may even need to raise cash by launching an IPO of the state-owned oil company itself. While not completely unexpected, they’ve executed dissidents who threaten their sovereignty which has isolated it in the international community.

With a higher cost of living, reduced social programs, and the distinct possibility of initiating income taxes and other taxes which are routine in democracies, the Saudi people will start demanding more from their government. By driving down the global price of oil, the Kingdom is risking the future of its regime. They are cutting off their nose to spite their face. In the wake of the 2011 Arab Spring, Saudi Arabia wisely sought to calm internal tensions by increasing its social programs to preempt civil unrest. They are now reversing those programs, and it’s a foolish move. If the ultimate goal is to preserve the Kingdom, maintaining market share in the global market for oil is nothing less than a foolish short-term objective.