Ali al-Naimi
Ali al-Naimi met with me last Thursday for lunch at the Dobbs Diner in Dobbs Ferry, New York. He had two eggs over easy with corn beef hash and home fries. I had the French toast with real maple syrup.
Ali al-Naimi has been the Saudi Oil Minister for twenty years, but only this year when he refused to cut Saudi oil production in the face of a global oil glut did he become a ‘celebrity’.
Me: Ali, you have been accused on wrecking the global oil industry.
Ali: Paul, you must understand, Saudi power is based solely on our ability to impact oil prices. By causing the price of a barrel of oil to drop 50%, we were able to show that the world that we are still in control.
Me: But Ali, the oil industry is about 5% of global GDP. By cutting the price of a barrel of oil from more than $105 to $45 Saudi Arabia has caused great hardship in the oil-based economies of the world like Russia, Venezuela, Iran, Iraq, ISIL, Texas, Alaska, Nigeria, to name a few. By some measures, you personally have destroyed 2.5% of global GDP – that is a lot.
Ali: Except for Texas, none of those countries are friends of Saudi Arabia. We are feeling the hardship too. Our fiscal budget went from surplus to deficit. We have had to sell some of our rainy day assets.
Me: Ali, frankly none of this makes sense to me. To avoid giving up 1 point of global market share or 1 million barrels of oil per day, Saudi Arabia has taken a 50% cut in the price of a barrel of oil. My back of the envelope calculation says that you avoided giving up $105 million per day (1 million barrels of oil @ $105 per barrel) and accepted giving up $660 million per day (11 million barrels of oil times $105 per barrel minus $45 per barrel). How do you respond to that simple math?
Ali: We had to destroy the frackers and the oil sands projects. We had to keep the Arctic from being developed. At $105 per barrel, world reserves were skyrocketing. Thank god for Gazprom who financed the anti-fracking movement in Germany and France and stopped those non-conventional fields from coming on stream.
Me: Ali, wait a minute. Are you saying that Peak Oil, M. King Hubbert’s great theory is wrong –that there is no Malthusian event horizon out there when we run out of oil.
Ali: Come on Paul, don’t be naïve. Everyone knows that Peak Oil is bullshit. It was a theory promoted and embraced by the petroleum industry because it created the allusion of scarcity. Commodities as common as oil only have excessive value if the public believes they are scarce. Yes. The oil industry tolerated the environmental movement, not to save the world, but to prop up oil prices when OPEC supplanted the Texas Oil Commission. I wasn’t there, but I know people who were.
Me: Ali, people have been predicting the economic implosion of fracking for years. And yet the industry keeps innovating and defying the skeptics. Humans are not linear equations. Humans adapt and change. Perhaps you don’t realize how fragmented the American oil industry is. It is unique in the world in that 47% of production is from small independents. You can’t keep small businessmen down. They will find ways to cut costs, increase production and make money.
Ali: You are right. We underestimated the resilience of the American oil industry. In my country, there is only one oil producer. We can’t imagine a situation in which economic power is so distributed.
Me: Gregory Stoupnitzky recently wrote in the online Financial Times that Russia should de-centralize its oil industry to boost production. Maybe Saudi Arabia should consider the same. I guarantee that small independents would not do something stupid like cut prices 50% in one year to save 1% of market share.
Ali: Now you are insulting me. We are a kingdom. The king would never share economic power with small businessmen.
Me: Putin probably won’t either.
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