The Energy Information Administration is an adjunct of the U.S. Department of Energy it remains the chief architect assembling the volatile mix of macro components characterizing American dominance in petroleum. Who would have thought that America would become an energy export giant using updated late 19th century type extraction methods? Hydraulic fracking into shale was contemplated by American titans during our Gilded Age, but has only recently been applied. If ideas have consequences, what irritated Americans to apply antiquated methodology in the hope of alleviating an insurmountable problem?
The source irritating America was the July 07, 2008 price for crude at $147 a barrel. This is why an old adage remains true: Don’t bet against America.
This isn’t a reality that the House of Saud understands. Autocracies run like any ‘racket’, or closed system of patronage; highly inefficient, redundant, and slow to learn anything new.
What the House of Saud fears is now a specter looming large upon the minds of its leaders, and it isn’t just Iran. What the house of Saud fears is that Arabs now have to compete! The challenge thrown down to Arab potentates isn’t something they can manage because it comes from an alien order. The Arab order of a homogenized stable social base is fracturing under the appeal of modernity while Iranian light infantry seeks to envelop the Arabian Peninsula.
North America now leads the world in energy production.This is largely due to American crude oil and natural gas production. The imprimatur for oil excellence is called West Texas Intermediate (WTI) because of its extremely low sulfur content. Next to WTI is Brent Crude, and we excel in the identification, extraction, production and manufacturing of both types.
North America alone produces 22 million barrels a day, with the United States leading at 14.9 million daily barrels. The Saudi’s push out 12.4 million, with Russia in at 11.2 million.
America dominates in natural gas with 27.1 trillion cubic feet. By any measure we’re a petrol powerhouse and continue to swamp OPEC in production and manufacturing of attendant petrol related manufacturing products.
Where does this leave the Saudi’s?
They’ve decided to do what China has done in openly purchasing multinational companies whose operational cultures are alien to the parent nation state. All in the hope of stemming a tide; because they will not compete for position in market fundamentals.
The Saudis have purchased a dominant stake in TellurianInc., a liquefied natural gas producer in Houston. Riyadh continues to inquire about purchasing oil assets in two U.S. basins, the Permian and Eagle Ford basin located in Texas.
“These are watershed moments for Arab autocracy,” explains Jason Bordoff, director of Columbia University’s Center on Global Energy Production. By investing abroad Arab monarchies begin to look like ameliorated progressive blue states consistently looking for new sources of tax revenue while ignoring the carnage it produces with high tax progressivity. The Saudi’s may survive, but offshoring to diversify their dependency will not address the myriad social problems that underwrite its political regime.
Saudi reserves are difficult to extract and very high in sulfur content increasing production costs. Importing reserves or diversification only partially address an endemic problem intrinsic to Arab political economies.
For the Saudi’s to win in their dual engagement, they must reform their political economies to openly manage market fundamentals that previous regimes denied.
The land of Ishmael is fraught with challenges whose source cannot be alleviated. Crown Prince bin Salman has sought to confront what ails the kingdom, he’s failed in Yemen and watched as the Shia agitate domestically in eastern provinces while foreign rebels continue to strike at the capital while funded from abroad.
The perfect storm brews for Arab petrol monarchies whose solution may rest with Iranian citizens abroad.