Saudi Arabia unlikely winner in 2020 oil crash: energy policy expert

Saudi Arabia unlikely winner in 2020 oil crash: energy policy expert
Saudi Arabia unlikely winner in 2020 oil crash: energy policy expert

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Jeddah - Yasmine El Tohamy - DUBAI: Saudi Arabia will be one of the oil nations likely to emerge as big winners this year, largely unscathed from the onslaught caused by the coronavirus pandemic on global energy markets, a former special assistant to US president Barack Obama said.

“Around the world, petrostates from Nigeria to Iraq to Kazakhstan are struggling and their currencies tanking. Some, like Venezuela, face an economic and social abyss... While 2020 will be remembered as a year of carnage for oil nations, however, at least one will most likely emerge from the pandemic stronger, both economically and geopolitically: Saudi Arabia,” Jason Bordoff wrote for online publication Foreign Policy said.

Bordoff, a former senior director on the staff of the US National Security Council and the founding director of the Center on Global Energy Policy at Columbia University’s School of International and Public Affairs, also said the Saudi Arabia’s financial strength should help it weather beatdown the energy market is currently experiencing.

“Unlike most other oil producers, Saudi Arabia has not only plump fiscal reserves but also the demonstrated capacity to borrow,” Bordoff said, as earlier indicated when the Kingdom’s top finance official said the Saudi government could borrow as much as $58 billion this year.

Saudi Arabia’s hefty foreign exchange reserves of $474 billion is way above the $300 billion level many consider the minimum to defend its US-dollar pegged currency, the riyal.

Bordoff likewise said that Saudi Arabia will end up with a bigger slice of the oil market – and the higher revenues that go with – once the situation stabilizes.

“While the outlook for future oil demand is highly uncertain, once you look beyond the immediate crisis, demand is likely to grow faster than supply,” Bordoff wrote.

Production cuts and shutdowns, forced by the global oil price collapse, would weigh on crude supply that of particularly US shale after major oil companies have abandoned their capital expenditures to avoid producing crude that sell at a loss.

“US shale oil will take years to return to its pre-coronavirus levels. Depending on how long oil demand remains depressed, US oil production is projected to decline by 30 percent from its pre-coronavirus peak of around 13 million barrels per day,” Bordoff wrote.

“To be sure, recovering oil prices will raise US production again. Shale oil production remains economical, especially for the better-capitalized companies that will emerge once the assets of bankrupt companies change hands and the industry is consolidated.”

“Indeed, as COVID-19 sets the stage for tighter oil markets and higher prices, Saudi Arabia, along with a few other Gulf states and Russia, will not only benefit from higher prices but actually find opportunities to grow market share and sell more oil,” Bordoff wrote for Foreign Policy.

“Finally, by shoring up its fraying alliance with the United States and reestablishing itself as the global oil market’s swing producer, Saudi Arabia has strengthened its geopolitical position,” he said.

“As the major producers and consumers scrambled to prevent the oversupply of oil from overwhelming the world’s storage facilities, they finally turned to Saudi Arabia to lead OPEC and other key producers in a historic production cut.”

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