Riyadh, March 21: Saudi Arabia, with the world’s biggest oil reserves and greatest excess pumping capacity of all oil-producing nations, is often lauded for dampening rising oil prices during periods of strife by increasing its crude oil output. But the often ignored flip side of that action is a crescendo of cash.
Elevated oil prices and expanded production as a result of the Iraqi conflict are already pouring as much as a billion extra dollars a week into Saudi Arabia’s coffers and could double the government’s oil revenues this year. “They’re raking it in,” said a Western oil executive here in the kingdom’s capital. And this in a country that is deeply opposed to the war that is responsible for its windfall.
Since late last year, members of the Organisation of Petroleum Exporting Countries (Opec) have been ratcheting up output as anxiety over a war with Iraq, heightened US demand during an unusually cold winter and interrupted Venezuelan production pushed oil prices steadily higher. Saudi Arabia, which is normally limited by Opec quotas to producing just over 7 million barrels a day, is now pumping 9 million barrels a day. That output could surge as high as 10.5 million barrels a day — its full capacity — if the country makes up for lost Iraqi production during the war.
Rumours have circulated for weeks that Saddam Hussein was rigging Iraq’s oil wells with explosives in hopes of slowing an invasion and raising the cost of reconstruction for any new government. Iraq set fire to Kuwaiti oil fields during the first Persian Gulf war in 1991, and some southern Iraqi oil fields were reported to be on fire, possibly sabotaged by Iraqi troops.
There are also fears that the terrorist network al Qaida will try to disrupt global oil supplies by attacking pipelines or other facilities. Al Qaida followers attacked a French oil tanker off the coast of Yemen last year.
The Saudi oil minister, Ali al-Naimi, pledged yesterday to work with fellow Opec members to maintain market stability. Saudi officials often complain that they are underappreciated for their role in keeping the world’s oil reasonably priced and readily available. The boon is a welcome one for a country whose economy, despite images of bejewelled princes, has been in the doldrums for years.
Saudi Arabia’s excess capacity, while providing a valuable mechanism for stabilising oil prices and protecting the US and other heavily oil-dependent economies from energy shocks, is the result of a huge miscalculation in the early 1980s, when the global demand for oil was expected to keep rising.
The kingdom invested billions in new wells, pumping stations and pipelines only to have demand slacken and oil prices plunge. The government tumbled deep into debt, and the economy fell into a slump from which it has yet to emerge.