Why Saudi Arabia’s Pursuit Of Market Share Is Self-Defeating
The Saudis are on track to sacrifice ~$100 billion in crude export revenues in 2015, or 45 percent of 2014’s ~$219 billion in crude export revenues, in pursuit of market share, the measure of success Saudi Oil Minister Ali bin Ibrahim Al-Naimi announced at the November 27, 2014 OPEC meeting.
What do the Saudis plan as their encore in 2016? Will they continue pursuing market share over other goals (e.g., total revenue, economic diversification, OPEC conciliation), or will they alter course, and if so, is there a superior alternative?
Publicly, Saudi officials appear unwavering in support of market share. The crude oil futures markets and many pundits reflect this official line. Saudi economic fundamentals, IEA projections through 2020 for the oil market, and the currency markets—pressuring the Riyal-US$ peg—suggest the pursuit of market share is at best a chimera, at worst necrotizing fasciitis (flesh eating bacteria) for Saudi Arabia.
A Saudi Economic Reality Check
Depending on the data series used, the Saudi economy either is escaping unscathed, if not prospering, from the move to market share or is suffering from that move. The IMF Press Release reporting on an IMF team’s findings, published June 1, 2015, expressed the former:
“The decline in oil prices is resulting in substantially lower export and fiscal revenues, but the effect on the rest of the economy has so far been limited. Real GDP growth is projected by IMF staff at a healthy 3.5 percent this year, unchanged from 2014, with an increase in oil production and continued government spending expected to support the economy. Growth, however, is projected to slow to 2.7 percent in 2016 as government spending begins to adjust to the lower oil price environment. Over the medium-term, growth is expected to be around 3 percent. Inflation is likely to remain subdued.”
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