Quora Question: Why Is Saudi Arabia Pushing Russia's Oil-Dominated Economy Toward Ruin?

A driver waits to fill his car with fuel at a petrol station in Riyadh, Saudi Arabia, December 22. Faisal Al Nasser/Reuters

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Answer from Richard Muller, Prof Physics, UC Berkeley, author of Energy for Future Presidents

Saudi Arabia is not purposefully letting oil prices drop. It has no real choice. The world is addicted to oil, but Saudi Arabia is addicted to U.S. dollars. Its repressive government stays in power (partially) by sharing their oil wealth with its citizens. If Saudi Arabia slows production, it believes its income will drop unless all other producers drop production too. The U.S. is not part of that cartel, so we will continue to produce; in fact, now that we can legally export (at least some) oil, we might replace the Saudis in their market share. U.S. oil production will go up further as soon as the price goes up. (It's remarkable that dropping production costs have kept U.S. production high despite the lower price per barrel.) Saudi Arabia does have huge cash reserves, and that has allowed it to reduce production for short periods. Saudi Arabia has, in the past, claimed to reduce or increase oil to help the world, and even to help the U.S. economy. I never believed that. The Saudis manipulate oil as necessary to maximize their own income. In some cases, OPEC dropped production, but in doing so at times of scarcity (particularly when China's oil imports were growing) they could boost the price and increase their income. Sometimes they boosted production, but I think they were hoping to drive out some competition, both from renewables and from expensive but high volume production approaches such as off-shore. Now they are stuck. With prices very low, due to U.S. shale production and slowing Chinese economy, they are in serious trouble at home. They are spending their cash reserves, but the problem is that they see no end to the crisis. They fear that U.S. production is so high, and U.S. potential production so much higher, that their ability to manipulate the market is over. Look at the list of countries that are the major oil exporters: Saudi Arabia, Russia, UAE, Kuwait, Iraq, Nigeria, Qatar, Iran, Angola, Venezuela (in descending order). How many of them are good friends of Western liberal democracy? They are all in financial distress because of the drop in oil prices. No U.S. foreign policy could hurt our adversaries as much as has happened from the shale/fracking revolution. Try not to indulge in schadenfreude. The top oil importers are China, the U.S., Japan, India, South Korea, Germany, France, Spain, Italy, and Taiwan (again, in that order). How many of them do you consider friends? Go ahead; indulge in a bit of joy for them. Sometime in the next year or two, one or more of the oil exporting countries is going to face internal collapse. Many people think the first is Venezuela, happening right now. But how should we prepare for the collapse of another? And which will it be?

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