A kingdom fit for an oil price ordeal - FT.com
▻http://www.ft.com/intl/cms/s/0/55fd04a4-8f48-11e4-b080-00144feabdc0.html?siteedition=intl#axzz3NOCaUiwG
(...) Leading the charge into battle is Saudi Arabia, the world’s largest exporter and long-time leader of the Opec cartel, which is fighting for its status as king of hydrocarbons. Maintaining this position is crucial not only to the economy of the kingdom, but also to its role as the Gulf powerhouse and the west’s main strategic Arab ally.
Saudi Arabia proved unwilling or unable to arrest the slide in oil prices in recent months, and debate has raged over Riyadh’s motives. Was it deliberately contributing to the depression of prices to devastate the economy of its regional rival, Iran? Was it engaged in an American-Saudi ploy to intensify the pressure on Russia?
Neither, as it turned out. Saudi Arabia has not abandoned its traditional policy of separating oil strategy from foreign policy, even if it is likely to relish the secondary effects of its behaviour on states with which it disagrees.
For Riyadh, something more vital is at stake. In keeping with the more assertive attitude it has shown in the past year, it is taking a big risk on lower oil prices, in the hope of preserving its market share in a world of weakened oil demand and growing supply, particularly from the US shale boom.
After a long and mysterious silence, Ali Naimi, the veteran oil minister, made clear just before Christmas that, in refusing to cut production without a similar move by non-Opec producers, Saudi Arabia was trying to prove to the world that survival is for the fittest.
And the fittest in this case is the kingdom, which has the lowest cost of production, but also low debt and massive foreign exchange reserves of more than $700bn.
(...) Perhaps the trickiest question lies within the kingdom. The just-issued Saudi budget for 2015 projects a slight increase in overall spending despite a significant reduction in revenues, to ease doubters’ concerns that falling oil receipts will cause an economic slowdown.
Mr Naimi is the most powerful among non-royal technocrats and has the confidence of an ailing monarch. Despite grumbling in the business community, it is reasonable to assume that such a critical decision was taken with fairly broad support among senior princes.
The battle with US shale, however, could be long-drawn-out, testing what might be a fragile domestic consensus. How long before it begins to fray as the kingdom dips deeper into its foreign exchange reserves?❞