The Machiavellian Nature of Saudi Oil

Saudi Arabia wants to be paid for oil they won’t–likely can’t–produce.

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This week, negotiators are meeting in Bonn for discussions leading up to the 16th Conference of the Parties to the United Nations Framework Convention on Climate Change (the UNFCCC CoP16). Faithful readers may remember that I was in Copenhagen for the 15th CoP in 2009. This year’s meeting is scheduled for late November/early December in Cancun, and already discussions are heating up. In addition to worries about what to do if no resolution is reached before the 2012 Kyoto Protocol deadline, Saudi Arabia is raising a red flag again: this time to ask for reparations for money they would lose if the world were to cut petroleum use.

The kicker here is that Saudi Arabia wants to be paid for oil they won’t–likely can’t–produce. There has been suspicion for several years that Saudi Arabia, along with other OPEC countries, has been progressively overstating the levels of their own oil reserves. Add to that that Persian Gulf states are using an increasing portion of the oil they do produce domestically (up to an additional 1.5 million barrels per day by 2030 just for electricity generation). Add to that that, by some accounts, Saudi oil production peaked in 2005 and shows no signs of rebounding.

This yields a picture of a situation where Saudi Arabia is faced with declining production and exports in coming years due to domestic use and geological fundamentals of supply. If only there was some way to get paid for all the oil that they don’t have to export! Enter the UN climate change negotiations. If declining production can be blamed on international pressure for climate change mitigation, rather than other factors, then perhaps the Saudis can still get paid. Who would foot the bill remains an unanswered question.

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