In the years since, the United States has become an energy titan. In November, for the first time in decades, the United States briefly exported more oil than it imported. But a historian who read Epstein’s story in 2019 said some of it felt like it could have been written yesterday. Ellen Wald, the author of Saudi, Inc.: The Arabian Kingdom’s Pursuit of Profit and Power and the president of Transversal Consulting, found important contrasts when comparing the snapshots represented in Epstein’s 1983 article with today’s energy story.
1. Saudi Arabia’s oil power stems from one factor: control. When ministers from the countries that make up opec gather, Saudi Arabia is first among equals. “Production decisions are made in Riyadh, not Vienna,” Saudi Arabia’s then–oil minister, Ahmed Zaki Yamani, said in the 1980s. Saudi Aramco, the national oil company owned by the royal family, can today, in principle, pump up to 12 million barrels of oil a day. What has always given the Saudis their power is the ability to produce less if they want to drive up prices.
What may not have been clear in the 1980s, according to Wald, was that the Saudis didn’t always have this control. Aramco was originally an American creation, and it was historically owned by four Western oil companies. The Saudis slowly bought them out, but at the time of the embargo, the Saudis owned only 25 percent of the company. In an episode Wald researched for her book, Yamani had to go to Aramco’s American CEO to tell him to implement the embargo. Wald paraphrased their conversation for me: “The CEO said to him [that] he didn’t think they’d be able to do this embargo and these production cuts. And Yamani, the Saudi oil minister, responded, ‘Oh yes. We’ve discussed that. We’ll be able to do it because you are going to do it.’ And that was that.” The American fell into line.
Now the Saudis fully own Aramco and no longer need to ask permission to change production. “They have this one room where they can literally control any of the oil taps and all of the refineries. They know where all of their ships are, and every barrel of oil being produced,” Wald said. “With the flick of a switch they can turn their oil production down.” Compare that with the United States, where oil is produced by dozens of independent companies. Antitrust laws prohibit opec-style coordination with other producers.
2. opec is still toothless, but it remains a convenient enemy. If production decisions are made in Riyadh, what’s the point of a Vienna-based faux oil cartel? “Every time everyone gets together for an opec meeting, that’s the No. 1 question,” Wald said. History provides some insight. As Carter was struggling with a response to the oil shock, which was caused in part by Saudi maneuvering, an adviser turned to him with a proposal. “With strong steps we can mobilize the nation around a real crisis and with a clear enemy—opec,” a memo suggested. “opec made an especially convenient ‘clear enemy’ precisely because it hardly existed,” Epstein wrote. “If a real country were chosen for this role, there would be real consequences.” opec’s existence gave plausible deniability not just to its members but also to its adversaries, including the United States.
opec serves the same cynical function today. “I don't see that changing, because it plays a vital role as this great villain in Americans’ minds. We can blame opec when oil prices are too high. But particular oil producers, we can still be friends with them,” Wald said. Trump has followed the pattern of giving Saudis the credit and OPEC the blame. “Oil prices getting lower … Thank you to Saudi Arabia,” he tweeted in November. The next month, the tweet was: “Hopefully opec will be keeping oil flows as is, not restricted.”
3. The Saudis can’t quit America either. After the murder of the writer Jamal Khashoggi, allies of Crown Prince Mohammed bin Salman warned that the Saudis could retaliate to any American sanctions. Saudi officials denounced that option though, saying there would be no return to the embargo era. They have good reasons for that. The 10 million–plus barrels of oil the Saudis pump every day are far more than the record low of roughly 2 million barrels a day the kingdom produced in the mid-1980s, when it was trying to make prices spike. And the kingdom needs American customers to buy that oil in order to fund its economic diversification strategy, known as Vision 2030. Its political relationship with Washington also constrains its ability to cut production; after Trump announced new sanctions on Iranian oil in fall 2018, the Saudi crown prince promised to pump more to keep the market balanced. However, Saudi Arabia is cutting production again after the United States issued waivers to its Iranian sanctions policy.
The Saudis have been able to use their oil weapon only when other oil producers are tapped out, Wald said. With the American energy sector booming, global markets look very different from the ’70s and ’80s. The Saudi business model has also changed. Saudi Aramco is no longer “just drilling holes in the ground and pumping out,” Wald said. In 2017, the company took over the largest oil refinery in the United States. “The Saudis would essentially be embargoing their own refinery,” Wald said. That makes the overall relationship safer.
“The genius maybe of the early Saudi kings was that they let the oil business be the oil business. They recognized how important the money that the oil business generated was to their own power,” Wald said. Unlike countries that quickly nationalized their oil companies, such as Iran or Venezuela, the Saudis transitioned to national control of their oil resources over many years, without throwing out the American expertise that made Aramco so profitable to its owners. Wald is less confident that the current generation of Saudi leaders will display the same cautious strategy about their assets. A plan to sell public shares of Aramco, billed as a move to make the secretive company more transparent, was shelved last year. “There isn't the same sense of patience that some of the older Saudi kings, the original king and some of his sons, had about this,” Wald said. Rather than opening up, the Saudis have opted, again, for control.