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Saudi Arabia’s Shrewd Gamble

The government of Saudi Arabia has been roundly criticized for its brazen attempt to retain oil market share while driving the price of oil into the ground, its beheading of the Shi’ia cleric Nimr al-Nimr, and its war in Yemen. These criticisms are grounded in a Western (read non-Saudi) view of the world. From the perspective of the Saudi government and ruling Al Saud family, they were all carefully crafted. Rather than simply rejecting these actions in stark black and white terms, consider them in context.

The Saudi world view sees the kingdom in the process of being surrounded by Iran and its proxy forces. Looking on a map from the Saudi perspective, Saudi Arabia is in the process of being enclosed by states that either seek to reduce its influence in the region or desire the destruction of the House of Saud. Iraq and Yemen have become proxy states of Iran, on its northern and southern flank. Jordan is in a weakened state and vulnerable to jihadist extremist forces – some of the same groups that seek the overthrow of the Saudi government.

In addition, the tremendous growth in the development of shale oil and oil sands as alternative sources of the world’s oil has all of the world’s traditional oil producing nations that are not pursuing such production alternatives in a defensive posture.

The kingdom’s decision not to alter its production posture is a calculated business decision that many commercial entities make every day.

Saudi Arabia is bearing the consequences of that decision, just as the rest of the world’s oil producers are, but it is taking a bold gamble with its own future in the process. Should the price of oil remain seriously depressed for several more years, the government will surely deplete a substantial portion of its foreign exchange reserves, and given its failure to diversify revenue sources away from oil, it may well find itself in serious trouble of its own making.

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