Arthur Herman argues at National Review Online that the oil war is over and “we won.”
Last week was a bad week for Saudi Arabia.
First, Congress overrode Obama’s veto of the bill letting Americans sue the kingdom for its alleged role in the 9/11 attacks. And second, Riyadh finally decided to throw in the towel in its two-year war on American energy producers by announcing that it was prepared to cut oil production by half a million barrels.
That war was supposed to collapse America’s fracking industry. Instead, as reported on OilPrice.com, “Saudi’s entire economy is collapsing” — and they are desperate to push oil prices back up again.
The announcement last week was a complete reversal of the policy the Saudis have been following since the summer of 2014, when, as global oil prices began to tumble, their oil ministry announced that they were going to continue normal production. That flew in the face of the way a major OPEC producer typically reacts to falling prices: Slash production so that demand outstrips supply and prices rise again.
But the Saudis had other ideas. They had watched the fracking boom in the United States with deep unease, as production of shale oil from places like the Bakken field in North Dakota and Eagle Ford in Texas was turning the U.S. into the Saudis’ chief rival as the world’s biggest oil producer (at one point in early 2014 the U.S. even surpassed the Saudis at almost 11 million barrels a day).
The Saudi answer to the American challenge was to keep pumping even as prices fell. The Saudis assumed that a global oil glut would push prices so low that American producers would be forced out of business, production would grind to a halt, and places like the Bakken would soon be as silent and desolate as the surface of the Moon. …
… Last week someone did finally cry uncle — the Saudis. Far from ruining the U.S. fracking industry, the global oil glut is about to ruin the kingdom of Saudi Arabia. It seems that an economic and social system that has developed around oil — indeed, is entirely dependent on it — couldn’t sustain itself at prices this low.
