Date: 2016-08-12

Oil Policy Continuity Expected from New Saudi King

Daniel Cooke

Shortly following the coronation of the new King Salman of Saudi Arabia, the recently minted monarch quickly assured the global energy community that the kingdom would continue its policy of encouraging top oil exporters to raise their production levels. The king's message directly contradicts with global expectations that the death of King Abdullah might lead to fundamental changes in Saudi Arabia's oil policy, but most analysts now agree that the royal family will resist any sharp changes in policy, especially as it tries to navigate multiple foreign policy challenges in the region.

King Salman's actions of disregarding any notions of change reflect the notion that he is trying at all costs to reestablish stability in one of the most tumultuous times in the kingdom's history. Yemen's current insurgency has rattled Saudi influence on the Arabian Peninsula. The other OPEC oil-producing nations are finding it increasingly difficult to continue production at such high rates against poor market performance, and the IMF expects the revenue of Saudi Arabia and its regional allies to drop by $300 billion in 2015. Additionally, the kingdom is expected to lose an additional $750 billion in its reserves.

The former period of stable and relatively high oil prices also led to new industrial competition to Saudi Arabia and OPEC, including Canadian heavy oil projects, deepwater fields in Brazil, and shale projects in the United States. While many of these outside producers accuse the Saudis of purposely driving down the price of oil by more than 50 percent recently to diminish the boom in oil drilling, these policies have also weakened OPEC's reliance on high production with respect to low market performance. Therefore, while there is currently no pressing international reason for Saudi Arabia to change its current oil production policies, their approach is greatly testing the unity and endurance of the kingdom and its OPEC affiliates, as well as the persistence of the world's aspiring oil producers.

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