American Oil and Gas Reporter - April 2019 - 47

Oil Policy
Figure 2 is a record of Saudi Arabian
crude oil production since 1945. The bars

near the top mark the major events involving Iraq: the 1980-88 war with Iran,
the 1990-98 embargo of oil exports following the invasion of Kuwait, and the
2003-11 occupation by US forces.
After Iran's 1979 revolution, Saudi
production approached 9.8 million barrels
a day in both 1980 and 1981. It fell to
3.3 MMbbl/d in 1985 as the result of a
misguided effort to support an official
price of $34 a barrel-about $75 a barrel
in today's money-for Arab Light crude
oil. After October 1985, the kingdom
used aggressive pricing to increase its
exports and production. By August 1988
it had reached 5.1 MMbbl/d when the
war suddenly ended.
Two years later, in August 1990,
Iraqi forces invaded Kuwait. Despite
territorial claims, the actual issue centered
on the Kuwaiti and Saudi governments'
refusal to "make room" for increasing
Iraqi production.
The Gulf War and ensuing United Nations embargo of Iraq's exports allowed
the kingdom's production to reach 8.0

MMbbl/d in June 1991. Oil policy then
amounted to "produce about 8.0 MMbbl/d
and hope for the best." One consequence
of stable Saudi production was that the
Iraq embargo was gradually relaxed and
then ended in May 1998. In 1998, the
average price of Arab Light was $12.50
a barrel, not much different from $12.70
a barrel in 1978.
Output of 8 MMbbl/d was a depletion
policy. After an exploration program that
began around 1982, Saudi Aramco concluded it could sustain 8 MMbbl/d-2.9
billion barrels a year-for at least 50 years.
Adding 67 billion barrels of cumulative
production made the kingdom's estimated
ultimate recovery at least 212 billion barrels. Saudi Aramco also planned to maintain 10 MMbbl/d of producing capacity,
which would enable it to limit price increases associated with revolutions, wars,
embargos and other geopolitical events.
It was never clear how the kingdom determined that the benefits of that ability
would justify its costs.
Amid depressed prices, one theory

FIGURE 2
Crude Oil Production-Saudi Arabia, Iraq, Iran
11

Iraq-Iran War

Embargo of
Iraq

Occupation
of Iraq

10
9
8
Saudi
Arabia

Mbl/d

in 1964 by Faisal, the third son, who decreed that the line of succession would
be the sons of ibn Saud rather than descendants of Faisal. He also created the
office of crown prince (designated successor) to settle the order among sons
well in advance. In 2006, Abdallah (10th
son of ibn Saud) formalized the process
with an Allegiance Commission (AC).
The 28th son of ibn Saud committed suicide, leaving the AC with 34 members-
the surviving sons and a male descendent
of sons deceased or incapacitated. After
a crown prince becomes king, he proposes
candidates for crown prince until a majority
of the AC approves one.
As the 26th son, Salman was never a
likely king. He had been governor of
Riyadh for 48 years in 2011 when appointed minister of defense following
the death of his brother. The AC approved
him as crown prince after his brother,
Nayef, died in 2012. After Abdallah
died in January 2015, Salman proposed
Miqrin, the 35th son, as crown prince.
After the AC rejected Miqrin, Salman
proposed a nephew-Muhammed bin
Nayef (MBN)-who was approved.
Salman also created a new office of
deputy crown prince for his seventh son,
Muhammed bin Salman (MBS).
Having had a long time to think
about what he may do as King, Salman
has proven to be serious about major
change in Saudi Arabia. MBN had no
such agenda. The "last straw" may have
been Salman's decision to end diplomatic
relations with Qatar in June 2017, which
MBN opposed in favor of more diplomacy. Salman proposed MBS to replace
MBN as crown prince, and the AC reportedly voted 32-2 to approve. (There
was no prospect of a unanimous vote-
MBN and Miqrin bin Abdul Aziz are
members-but the real vote was likely
different.) Putting his son in the line of
succession was something Faisal did
not do in 1965. Born in 1985, MBS
could be King for 50 or more years and
beget many sons.
It is impossible for outsiders to gauge
the extent and intensity of al-Saud's opposition to the prospect that future kings
will be descendants of Salman. It is clear
that repression in the kingdom has reached
unprecedented levels, even extending to
a journalist living in exile. Salman and
MBS may or may not be paranoid, but
their bodyguards clearly are.

6
5
Iran

4
3

Iraq

2
1
0
1945

1955

1965

1975

1985

1995

2005

2015
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American Oil and Gas Reporter - April 2019

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