On Saudi Arabia: Its People, Past, Religion, Fault Lines - and Future (36 page)

“
Well,” asked Kissinger, “what are the fundamentals of our position, as you see it?”

Schlesinger replied, “The fundamentals are that we may be faced with the choice that lies cruelly between support of Israel [and] loss of Saudi Arabia and if [our] interests in the Middle East are at risk, the choice between occupation or watching them go down the drain.”

“Occupation of whom?” Kissinger asked.

“That’s one of the things we’d like to talk about,” responded Schlesinger.

“Who’s we?”

“Me,” Schlesinger acknowledged.

Secretary Kissinger, architect of the airlift to replenish Israeli military needs during the 1973 war with Egypt that sparked Saudi outrage and prompted the oil embargo, was also the one who negotiated with the late King Faisal to end the embargo. Dr. Kissinger warned the Saudi king that any future embargoes might well trigger a U.S. invasion. “
I did not threaten, but it is true I did say there could be incalculable consequences from another oil embargo,” Kissinger acknowledged in a 2011 interview. Prince Turki, son of the late King Faisal and Saudi ambassador to the United States more than thirty years after the embargo, demurs when asked to confirm that Kissinger made such a threat to his father, but offers an anecdote to indicate he believes it true.

“
I don’t know if what I am about to say is true, but it is pervasive in the Arab world,” Prince Turki says. “When Henry Kissinger said that to the late King Faisal, the king is reported to have responded, ‘We Saudis can go back to living in tents and eating dates and drinking camel milk. But what can you do?’ ” The king’s clear implication: Saudi Arabia would destroy its own oil wells before allowing the United States to seize them. “
I don’t recall such a statement,” Kissinger says.

While it may well be true that some Saudis could return to living in tents and dining on dates and camel milk, that kind of subsistence society almost certainly no longer would be ruled by the Al Saud. While the Al Saud family often displays pride and petulance, it is not suicidal.

Continuing Saudi oil flows at reasonably stable world prices is essential both to the industrial world and to the Al Saud. While a spiking oil price produces more short-term revenue for Saudi Arabia, that has not been the kingdom’s strategy. For one thing, the conservative royal family does not want to risk the enmity of its U.S. protector and of the wider industrial world whose prosperity is so dependent on oil. Furthermore, the Saudi government invests its oil revenues in U.S. dollars and other foreign currencies and has no interest in seeing those currencies collapse. Finally, prolonged oil prices at extremely high levels might actually prompt industrial countries to get serious about developing alternative energy sources, which is not in Saudi Arabia’s longer-term interest. So stability at reasonable prices serves all interests. “
The Saudis learned that the oil weapon is a boomerang,” said Schlesinger, America’s first secretary of energy, in an interview nearly forty years after the Saudi embargo. “The Saudis want us using oil for as long as possible.”

Schlesinger, long retired, now says he never supported seizing Saudi oil fields. He acknowledges he did think seizing the tiny UAE’s oil fields might serve as a “demonstration” to the Saudi regime. But he calls the idea of seizing Saudi oil fields “kind of crazy.” The country’s large population, he notes, would make occupying Saudi Arabia very difficult. On the other hand, he continues, “splitting off the Eastern Province, with its large Shiite population, might be doable.” The Eastern Province, of course, is where the great majority of Saudi oil is located. An uprising among Shiites, who are concentrated in the Eastern Province, where they account for about 30 percent of the population, is among the Al Saud’s worst nightmares. The regime fears that trouble in the Eastern Province might be exploited by Iran or used by the United States as a pretext for intervention.

These days the United States is a relatively modest importer of Saudi oil; imports are around 1.2 million barrels a day or roughly 12 percent of total U.S. oil imports. More Saudi oil is being sold to Asia and more Canadian and Mexican oil is being sold to the United States. Direct imports are not the
point, however, since global oil flows are fungible, and any significant change in Saudi production immediately would affect global prices and thus the price American consumers pay at the pump.

The ultimate irony in the U.S.-Saudi relationship based on oil for security is that in coming years Saudi Arabia’s oil exports are virtually certain to decline sharply, both because of the rapid rise in Saudi domestic consumption and because Saudi production may have peaked and may already be in decline. In a country where a gallon of gasoline at roughly fifty-three cents is cheaper than bottled water and government energy subsidies are roughly $35 billion annually, Saudi energy consumption is rising at what one energy official calls an “alarming rate.”
If this trend continues, Saudi consumption of energy could more than double to 8.3 million barrels a day of oil (or equivalent other energy) by 2028, roughly equal to the 8.6 million barrels a day of oil the kingdom exported in 2010.

King Abdullah contemplated imposing unpopular cuts in energy subsidies to induce efficiency among Saudis but abandoned the idea in 2011 in the wake of political unrest across the Middle East. The regime didn’t want to risk citizen anger. Instead, the government is investing in solar and nuclear energy, so Saudi Arabia can try to meet domestic energy demand that way and conserve oil production for export.
The kingdom has announced plans to build sixteen nuclear reactors at a cost of $7 billion each by 2030.

As domestic energy demand grows—along with global demand—so does the number of oil experts who insist that Saudi oil production has peaked and, indeed, is already in decline. Saudi Arabia refuses to provide transparency on either production or reserve numbers. Indeed, shortly after it took full control of Saudi ARAMCO in 1980 from the Americans, Saudi ARAMCO abruptly announced that reserves were 150 billion barrels, far more than the 100 billion barrels the American management had said existed in 1977. By 1982 the number was put at 160 billion barrels.
Then in 1988 Saudi ARAMCO raised its reserve estimate by yet another
100 billion barrels, a nearly 150 percent increase in the nine years of Saudi control! No convincing evidence ever has been provided to support the increase. And tellingly, in 1982 the kingdom and other OPEC oil producers ceased releasing production data by field, reducing the transparency on depletion of oil. Finally, Saudi Arabia has not revised its reserve estimate since 1988, even though it has pumped somewhere between 5 million and 9 million barrels a day for the intervening two decades, for a total of nearly 50 billion barrels.

All this led Matthew Simmons, chairman of Simmons & Company International in Houston and the author of
Twilight in the Desert: The Coming Saudi Oil Shock
, to challenge Saudi reserve estimates and the country’s ability to continue to serve as the world’s “swing producer,” raising production in times of high demand and then taking oil off the market when demand declines to keep prices stable. In short, Saudi leverage on the world market has become more limited.

In this meticulously researched book on Saudi oil fields and their production past, present, and future, Simmons, now deceased, examined data in published scientific papers on the four biggest Saudi oil fields, which account for 90 percent of Saudi oil production. He makes a convincing case that they are in decline, even though Saudi ARAMCO refuses to publish production numbers by field or allow any independent audit of production or reserve estimates. The giant Ghawar field, the country’s largest, which alone accounts for fully 50 percent of Saudi oil production—and 8 percent of total world production—is 60 percent depleted, he argues.
In production since 1951, Ghawar has yielded in excess of 55 billion barrels of oil. Still, Saudi Arabia hasn’t reduced its total reserve estimate. “
The death of this great king leaves no field of vaguely comparable stature in the line of succession,” Simmons writes.

That oil is a finite resource obviously is true. That most of the world is oblivious to such momentous events until they recognize them in the rearview mirror also is true. In 1970, the year U.S. oil production peaked at 9.63 million barrels of oil a day, hardly anyone was worried that the world’s largest
oil producer was about to see rapid decline in its production.
But since 1970 U.S. oil output has fallen, to 5.5 million barrels a day in 2010, even as U.S. oil consumption has risen to roughly 20 million barrels a day, or some 25 percent of worldwide consumption. The United States, which in the 1950s accounted for 50 percent of global energy production, now provides only about 7 percent. Clearly major shifts in oil production over brief periods are possible.

“
We are not good at recognizing distant threats even if their probability is 100 percent,” says former energy secretary Schlesinger. “Society ignoring this peak oil is like the people of Pompeii ignoring the rumblings below Vesuvius.” In a foreword to a new report predicting that world oil production will peak in 2015, Schlesinger notes that the decline rate from presently producing fields is roughly 4 million barrels each year. To replace that production and find additional oil to meet growing world demand over the next quarter-century would require the discovery of the equivalent of five new Saudi Arabias. No one expects that level of new oil discoveries.
Since the 1970s the world has discovered only one new barrel of oil for every three it has pumped from the ground, as Schlesinger notes in his foreword to
The Impending World Energy Mess.
(Of course, the world contains other actual and potential sources of energy but none are yet able to replace oil.)

Has Saudi oil production peaked and entered inexorable decline? Obviously only the Saudi leadership knows for sure. Beyond examining arcane data by experts, however, nonexperts observe some telltale signs. For starters, King Abdullah, while Saudi regent, warned his countrymen in 1998 that “the oil boom is over and will not return … All of us must get used to a different lifestyle.” Since becoming king in 2005, he has pressed his country to diversify its economy to create wealth, not simply extract it from the ground. Perhaps this is just an elderly king seeking to motivate a lazy populace, but one obvious implication is that the king knows oil is running out sooner rather than later.

Even more to the point, in the summer of 2010 King Abdullah told Saudi students that he had ordered a halt to
oil exploration to save the kingdom’s remaining hydrocarbon wealth for future generations. Speaking in Washington, D.C., to some of the thirty thousand Saudi students studying in the United States on King Abdullah Scholarships, the monarch recounted that he had once asked his cabinet ministers to repeat a prayer after him, “May Allah prolong its life.” The ministers, the king recounted, asked him, “What is ‘it’?”

“
 ‘It’ is the oil wealth,” the king answered. “I told them that I have ordered a halt to all oil explorations so part of this wealth is left for our sons and successors, God willing,” Abdullah said.

The monarch went on to tell the students, “You are ambassadors of your homeland. Thank God, your homeland is proceeding resolutely to a prosperous future. God willing. And what is unknown is even better.” No official clarification of exactly what the king meant by a halt in exploration or of what is “unknown” has yet been issued, leaving all to wonder if it means Saudi Arabia no longer will serve as “swing producer”—raising production in times of high demand—or if it means Saudi Arabia
cannot
much longer raise oil production because its big fields are nearing depletion and new discoveries aren’t keeping pace.

Saudi ARAMCO CEO Khalid al Falih is similarly opaque about Saudi oil production. When I asked him in the spring of 2009 whether Saudi Arabia can continue to play the price-stabilizing role of swing producer, he insisted the kingdom still can increase production to balance supply in times of great demand but added, “
The question is should we do so? Our long-term depletion strategy is to allow our economy to evolve away from oil so we need to calibrate our production to use our oil slowly so our economy can transform to a non-oil economy. We don’t want to produce so much oil that people in Saudi have no incentive to diversify the economy.”

The sentiments are eminently sensible, but do they derive from choice or necessity? And if the latter, if Saudi Arabia’s total reserves are rapidly being depleted and if production already is in decline, the consequences for the world economy
as well as for the Al Saud are alarming. In terms of U.S.-Saudi relations, however, a gradual decline in oil production would almost certainly not mean an end to U.S. protection of the Al Saud.

Even if Saudi oil output is in decline, the pact between the United States and Saudi Arabia likely will remain important for other reasons. It would shift from a relationship built largely on oil for security to one increasingly based on security for security—U.S. security for the Al Saud’s. It is hard to imagine a scenario in which the United States could be agnostic about who rules Saudi Arabia. In theory, the United States might be happier with a more pluralistic Saudi polity, but that is the least likely future scenario. The reality is that any regime that might follow the Al Saud—revolving military coups, radical fundamentalist rule, chaos in which terrorism flourishes—would be far more inimical to U.S. interests. For that reason, the United States seems certain to continue to protect the Al Saud, in the belief that the Saudi royal family, however flawed, is more likely to avoid overt hostility to U.S. interests and to try to control terrorism than any regime that might follow it. The House of Saud is busy spreading just that message.

M
ost Saudi experts—diplomats, businessmen, and scholars—while not oblivious to the country’s multiple challenges, still conclude that the kingdom, resting as it does on a foundation of Al Saud rule, conservative religious orthodoxy, and bountiful oil revenue, remains fundamentally stable. In this view, coming U.S. presidents will be dealing with Al Saud monarchs long into the future.