Located on the Arabian Peninsula, between the Persian Gulf and the Red Sea, Saudi Arabia is home to 30 million people and the world’s largest oil resources. It is the biggest global energy supplier, claiming one-quarter of the world’s known oil reserves, or more than 260 billion barrels. Saudi Arabia is also OPEC’s lead producer and a critical swing producer in the global oil market, a nation that “can influence global prices by increasing or decreasing production to expand or reduce available global supply.”1
Many believe that U.S. imports of Saudi oil, which remained fairly high for several decades, are one of the most important underpinnings of the U.S.-Saudi relationship. Numerous U.S. administrations and foreign policies have professed Saudi Arabia’s role to be a critical one that intertwines U.S. national security with access to oil in the Persian Gulf. The onset of the U.S. Shale Revolution and the United States’ subsequent reduction of oil imports from producers worldwide have spurred fears that a diminishing oil trade relationship will undermine U.S.-Saudi cooperation on other important security matters like counterterrorism, though such an outcome is unlikely.
At about 8 million barrels per day, Saudi Arabia’s oil output is the largest in the world. The bulk of this production comes from eight large conventional plays that are relatively cheap to develop. Saudi Arabia’s Ghawar field (the world’s largest oil field) alone has about 75 billion barrels of oil left, more than the total proved reserves of most other countries. Saudi Arabia is the largest producer in OPEC, and it has often served as the bloc’s primary swing producer, adjusting its own output to ensure the cartel meets its predetermined production quotas. (It has proved less willing to account for other members’ overproduction in the past year or so.)
Estimates for recoverable shale resources in the country are quite low. Developing unconventional plays with the use of more expensive and technically advanced production technologies would not only require significant access to water resources, which are already scarce in Saudi Arabia, but also the digging and exploration of new wells.
However, the use of new technologies elsewhere in the world has affected Saudi Arabia’s revenues. Shale production in the United States, Canada and other areas with unconventional plays has flooded the global oil and gas markets with new supplies, driving prices downward. The steep decline in oil prices has forced Saudi Arabia, which relies on oil revenues for 85% of its export earnings, to dip into its sovereign wealth fund. Despite its strained finances, Saudi Arabia has refused to lower its own production to push prices back up; many speculate that it is trying to keep oil prices low to squeeze U.S. shale producers out of the market by limiting their profit margins.
To many Americans, Saudi Arabia is a producer of paramount importance that maintains a special relationship with the United States. Though people often think Saudi Arabia is the United States’ biggest supplier of oil, it is in fact heavily outweighed by Canada, which supplies about 37% of the United States’ petroleum imports. (Saudi Arabia, by comparison, only accounts for 8-13%.) Thus, while Saudi Arabia is a significant U.S. trade partner, the importance of the two countries’ bilateral energy ties is often overstated.
By extension, it is unlikely that any further reduction in U.S. imports of Saudi oil as a result of the U.S. Shale Revolution will hurt the U.S.-Saudi diplomatic or security relationship. For the most part, security cooperation between countries often takes place independently of their oil trade. Saudi Arabia and the United States already have, as they both describe it, a strong relationship in regional security and counterterrorism efforts that has little to do with energy. Saudi Arabia is the largest destination for U.S. foreign military sales,2 and U.S.-Saudi cooperation has expanded since 2008 with the signing of a new bilateral cooperation agreement that places high-level U.S. advisory personnel within the Saudi government in industrial, energy, maritime and cyber security offices.3 In addition, both Saudi Arabia and the United States share a mutual interest in combatting terrorist threats posed by jihadist groups within the region. To that end, Saudi Arabia has participated in U.S.-led coalition airstrikes against the Islamic State in Syria and has agreed to host portions of the U.S. training programs for members of the Syrian opposition.
All of this is not to say that Saudi Arabia is unimportant in considerations of energy and security. On the contrary, the sheer size of Saudi Arabia’s contribution to global oil supplies means that it could have a significant short-term impact on prices worldwide if its output were suddenly removed from the market. However, Saudi Arabia’s security relationship with the United States is far less reliant on its oil exports than most people believe.