How Can Saudi Arabia Prevent Oil Prices From Rising Even More?

Saudi Arabia’s Role in Global Oil Markets: Myth Versus Reality

For many years, Saudi Arabia has been seen as the world’s pivotal oil producer, able to swiftly adjust its output to influence international oil prices. The Saudi government has consistently promoted this image, boasting about its vast oil reserves and supposed spare production capacity. After missile attacks on two major Saudi oil facilities by Iran-backed Houthi forces in 2019, the Kingdom also emphasized its ability to quickly recover from such disruptions. With ongoing instability in the Middle East, especially amid the current U.S./Israel-Iran tensions, questions remain about how much Saudi Arabia can actually do to stabilize oil prices.

Vulnerability of Key Oil Infrastructure

Recently, Iran targeted Saudi Arabia’s largest refinery at Ras Tanura, which processes around 550,000 barrels of crude oil per day. This incident raised immediate concerns about how rapidly Saudi Arabia could respond to a successful attack on its critical oil infrastructure, as it did in 2019. Although most drones were intercepted and the refinery was only temporarily closed as a precaution, the threat of further attacks remains. In 2019, strikes on the Abqaiq and Khurais facilities—responsible for about half of Saudi oil output and 5% of global supply—caused oil prices to surge by as much as 20%.

Saudi Arabia’s Production Claims Under Scrutiny

The aftermath of the 2019 attacks revealed some uncomfortable truths for market observers. Saudi Arabia’s oil minister at the time, Prince Abdulaziz bin Salman, pledged to restore production capacity to 11 million barrels per day (bpd) by the end of September and reach 12 million bpd two months later. However, industry insiders noted that the Kingdom’s statements often refer to “capacity” and “supply to the market” rather than actual production at the wellhead, which are not the same. This distinction is used to maintain Saudi Arabia’s reputation as a dependable supplier, especially for Asian customers, but it also means official statements should be viewed with skepticism.

Reality Behind Saudi Oil Output and Spare Capacity

In reality, Saudi Arabia’s claims about its production capacity have long been exaggerated. From 1973 to September 2019, the country averaged just over 8.1 million bpd, and only once—briefly in November 2018—did it reach 11 million bpd. The much-touted 12 million bpd figure has never been achieved. As of the most recent data, average output remains around 8.3 million bpd.

Saudi Arabia’s supposed spare capacity of 12-13 million bpd is also questionable. According to the Energy Information Agency, spare capacity is defined as production that can be brought online within 30 days and sustained for at least 90 days. Even Saudi officials admit it would take at least three months to ramp up production meaningfully. After the 2019 attacks, Saudi Arabia managed the crisis by drawing down domestic inventories, reducing refinery supply, and purchasing oil from Iraq—ironically, much of it originating from Iran, the very country behind the attacks.

Inflated Reserve Numbers

Saudi Arabia’s official oil reserve figures have also raised eyebrows. In 1989, the Kingdom claimed 170 billion barrels of proven reserves. By the following year, this figure jumped to 257 billion barrels without any major new discoveries. The number continued to rise, reaching 266 billion barrels and then 268.5 billion barrels by 2017. During this period, Saudi Arabia extracted an average of over 2.9 billion barrels annually, removing more than 80 billion barrels from 1990 to 2017. Yet, the official reserve numbers increased by nearly 100 billion barrels, despite no significant new finds.

Geopolitical Implications and U.S. Strategy

The United States is well aware of these realities and recognizes that Saudi Arabia’s ability to lower oil prices by boosting production is extremely limited. Nevertheless, the Kingdom has been central to U.S. plans for the Middle East, particularly in the context of the Abraham Accords—U.S.-brokered normalization agreements between Israel and several Arab states. These deals, initiated during President Trump’s first term, aimed to counter growing Chinese and Russian influence in the region after the U.S. withdrew from the Iran nuclear deal in 2018. However, the change in U.S. leadership in 2021 shifted the regional dynamics, leading to a China-brokered rapprochement between Saudi Arabia and Iran in March 2023.

Prospects for Regional Peace Initiatives

Despite these shifts, Trump has indicated his intention to revive the Abraham Accords, including a potential agreement between Saudi Arabia and Israel. The hope is that Saudi Arabia, historically at odds with Iran, might eventually join the normalization process, particularly under Crown Prince Mohammed bin Salman, who is seen as more open to such initiatives than his father. Notably, Saudi Arabia previously proposed the “Crown Prince Abdullah Peace Plan” in 2002, offering Israel recognition in exchange for a return to pre-1967 borders.

By Simon Watkins for Oilprice.com

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