Is The House of Saud Next?

Posted by Jeff Rubin on March 9th, 2011 under SmallerWorldTags: , , ,  • 25 Comments

As Libya descends into a bloody and protracted civil war, both the White House and International Energy Agency are considering tapping strategic oil reserves.

Normally, no one would care what’s happening in a remote desert country that has been a pariah state for decades. But when you produce 1.6 million barrels a day of oil in a market in which global supply and demand was already balanced on a knife –edge, all of a sudden everybody cares.

European motorists are already feeling the pinch at the pumps as the flow of Libyan oil slows to a trickle. Estimates of how much of Libya’s production has been shut down grow all the time. The latest estimate from the International Energy Agency pegs the loss at a million barrels a day. On top of that, 10% of Libya’s natural gas production has been shut down as ENI closed its Greenstream pipeline to Sicily.

Moammar Gadhafi, Libya’s dictator for the past 42 years, does not have many options at this point. Gadhafi has only to look to neighboring Egypt to see what happened to  fellow ex-strongman Hosni Mubarark, potentially facing state prosecution on corruption charges, to quickly realize he and his millions have nowhere to go.

The days of catching a waiting plane to Saudi Arabia and living off the avails of your foreign bank accounts seem to be over for fleeing Arab dictators. Saudi’s King Abdullah has his own problems without inciting more by providing safe havens to the likes of despised despots like Gadhafi or Mubarak.

Meanwhile, unrest continues to spread throughout the Middle East like wild fire, putting more of the region’s 29 million barrel a day oil production at risk.  Hundreds of thousands of protestors were in the streets of Yemen last week, while protestors clashed violently with authorities in Oman and Bahrain.

Most disconcerting to oil markets has been repeated reports of Shiite protests in the oil-rich Eastern province of Saudi Arabia. Despite King Abdullah’s attempt to buy off the potential protesters with $36 billion of new spending in the kingdom, authorities are bracing themselves for two “days of rage” planned for March 11 and March 20 to protest double digit unemployment and the lack of political freedom in the country.

Is the Royal House of Saud next on the growing list of deposed Middle East despots?

Certainly, their political right to rule isn’t any more legitimate, and perhaps no more sustainable, than Mubarak’s or Gadhafi’s.

If so, the path to $200 a barrel oil is a lot shorter than you think.  Not only is Saudi Arabia’s limited spare capacity of heavy sour crude incapable of replacing what has been lost from Libya, but the kingdom’s own nine million barrels a day output may also be soon at risk.

  • Unc

    Jeff,the party is over,a lot of people always thought the saudi capacity cushion would take the edge off, in the event of a disruption of supply from the middle east,Wrong,the so called extra ramp up crude is heavy oil,where there is limited refining capability world wide,easy to say extra ramp up volume, as long as you do not mention heavy,more cost intensive refining,the big drawing card for middle eastern oil has been,sweet,light,easy,. crude oil.The U.S. may open up the strategic reserve as a token to calm the markets,but that reserve is what it is,strategic for miltary defence purposes.I will make my own prediction. 1. the key- stone pipe line will be approved as an energy lifeline to the states.2.natural gas to liquids will be a new player in the you have predicted, more localized manufacturing will be utilized,only because it makes market forces swing that way for cost considerations and a responsibility to will be tough to even rent a dog-house in any area that produces energy,such as fort Mcmurray or the gas belt of north east B.C. Hang on everybody,cause we is in for an attitude adjustment.Unc. fort st john B.C.

  • Denny

    With one Libyan oil complex already in flames, how many more will be blown away by a commander (sorry, no official position) who has witnessed how Iraq’s leader fared in the crimes against humanity tribunal. Gadhafi will not allow himself to go down swinging at the end of a rope. Instead he will follow that noted Canadian poet, Neil Young’s advice, “It’s better to burn out, then fade away.” Unfortunately, the happy motoring American public will not enjoy the toxic fumes of burning oil.

  • JB

    The US has apparently filled-up its Strategic Oil Reserve, which is said to contain about 800 million barrels of oil.

    The US consumes about 20 million barrels per day of oil and may be able to readily produce or obtain from its neighbor allies (Canada and Mexico) about 10 million barrels a day.

    This means that if the Middle East oil producers were to cave in into a Mad Max zone and precipitate the world oil market into chaos (preventing any US import from afar), the US could use its Strategic Oil Reserve and last about 80 days (less than 3 months) at the current level of consumption…

    If one assumes that you can reduce, by way of rationing, the daily oil use of the US by 25% i.e. down to 15 million barrels per day, then the US Strategic Oil Reserve would enable it to last about 160 days (a little over 5 months)…

    Any military conflict in which the US would likely be drawn would however push up steeply the US daily oil consumption. So, realistically, a 5 month oil reserve is somewhat optimistic if all hell breaks loose…

    All in all, 5 months is way too short to be able to massively implement any serious energy base shifting (coal to liquid schemes or gas to liquids or gas to directly power vehicles in great number: the US has about 300 million vehicles on the road).

    So what would the US government do if TSHTF?


  • Unc

    JB,the US and everybody else in the open market best get used to shanks pony and inflation like yah read about,it might be a good thing at the end of the day,a huge shift in dynamics,trouble is the price of food will skyrocket world wide,it is one thing to loose the use of a auto when you want,it is quite another when you are hungry for some grub,people do not realize just how far we are tied into the petro system,as I mentioned,hang on to your hat.Unc.

  • Anonymous

    Interesting, although you can call me an incurable optimist but I think prices never stay very high for long due to demand drops as will become apparent in a while as we enter the “second dip” in this long recession.

    In 2008 high prices lasted 3-4 months at the much more robust state global economy was in, this time I think prices drop around May, but with an equal or larger recessive impact than that time.

    Since popular and government awareness of the real issue and of the scale of the transition needed to decrease oil prices impact on everyday life hasn’t improved much I think that until a third price spike in the next very volatile couple of years more practical measures won’t start floating and be taken seriously.

    Until then, you can expect these unsavory paliatives, in the order I think they’re more likely (order of political popularity):

    1. Eliminating taxes on diesel for certain professions
    2. Eliminating taxes on all gas
    3. Subsidizing professional diesel
    4. Starting to use the mandatory IEA 90-day reserve
    5. Trade scheme with exclusivity of part of supply with oil producing country
    6. Fuel Rationing

    I’d include increased biofuels production but it’s completely unpredictable as it heavily influences food prices so I have no idea if people are going to decide that energy is more important than food or not (wouldn’t be surprised either way).
    The measures they would have to propose if they faced the problem realistically (maybe in a 5 year time frame from now):

    1. Make the chain of supply for essential goods smaller by taxing imports and directing public purchase to native or local goods, hoping to set an example.
    The world that is emerging is one of isolationist political rhetoric and the return of the autarky ideals of 80 years ago, for better and for worse. I’m absolutely sure that the governments that emerge from the north africa rebellions will be isolationist in nature.

    2. Re-densify cities by creating incentives for building rehabilitation in order to slash transportation costs and solve an exploding suburban exodus. One way or another people are going to start occupying those buildings. Some might say that cities are a failed prospect but the fact is that every single time the economy sinks anywhere cities explode in size, since thats where the few remaining jobs and wealth are, or where people think they are.

    3. Assure that a much larger percentage of transportation of made by electrified rail (the only realistic post-oil electric vehicle) and by waterways/sea. Available diesel will keep being subsidized and directed to its most essential uses: agriculture and cargo.

    The challenge is that these measures require nothing short of the declaration of a state of emergency to be implemented in the sort term and need strong political consensus. Those would be impossible right now and would paradoxically be very weakened by the aftermath of that same declaration of national emergency.

    The best chance for citizens right now is to try to coordinate their own resilience and of those in the community around them, hoping that maybe a bottom-up approach might spread and become more influential.

    Personally I think this could work for a while but wouldn’t survive an oblivious government for long, since it provides most of the structural stability of everyday life.

  • Jacko

    Re-densify cities? yes we should get right on that, we could probably have that complete by the end of the summer

  • Anonymous

    I read your sarcasm as a hint of helplessness, since I also agree all or most of these measures are nearly impossible to implement in an orderly and timely way.
    Re-densification sould have started ten years ago for the inherent economical, health and environmental benefits it can bring, maybe now it will begin because there is little alternative to it.

    There is still a timeframe that allows us to determine if most new urban dwellers will be neighbours or squatters and to direct people to and reorganize any fertile soil and forest that is left around cities.

    “Austerité oblige”, most will say that fighting public deficit is more important than strategic thinking by investing in this type of public works. Let’s hope not.

  • Unc

    Nom, sounds to me like yas probaley live in quebec, mabey not,some people out that way likes their cake and eat it too.All I can suggest to you,in fairness to yourself,ed-ucate your self and be informed about what you think you know,the world is much more diverse than the narrow protectionist values aspired to by a small minority.The old saying goes: when in Rome, do as the Roman,s do.Wish I learned french in school,but I had to go to work at 13 years old, full time,a non privilidged family and I am proud of that,other wise I would respond to your comiments in french.What we need in this country is more settler type people with a desire to acheive,instead of this abstract mentality of entitlement.Go to work,be proud of your toils and be bloody proud you are entitled to live and work in a country like Canada,otherwise, I hear they are lookin fer some dream-makers in the middle east,never know,the Goverment of CANADA might even give you a grant, free of charge to do your magic over that way,so as you can fullfil your aspiration,s.UNC fsj B.C. CANADA

  • ra

    In his book, Mr. Rubin writes about the role coffee plays in our economy and our lives. Interestingly enough, you can read about the current state of the coffee business on The article is entitled “Peak Coffee Incoming: Climate Change is Killing Our Buff” by Brian Merchant. The impact of economics as a result of rising temperatures is outlined pretty clearly. fyi

  • God

    Re-densify cities? No way, man. I’m not leaving Montana. Big dense cities are going to be hellish crime-ridden infestations and who’s going to want to venture in and bring you guys food?

  • Anonymous

    When I say redensification of cities I mean that the current sub-urban population will be drained into the (suddenly more valued) peri-urban agricultural landscape and the cities-proper.
    If oil-based infrastructure fails what little energy or public funds will be left are going to these two areas, not the current sprawl.

  • ra

    Nor I Western SD. We have to hope that the best case scenario for cities is a gradual adjustment and adaptation to new energy realities. As Richard Heinberg wrote, “power down” can mean a gradual, chosen method of change, or it can mean a sudden jolt. I would not want to be in NY if things got dicey.

  • ra

    Mr. Kunstler has written extensively about what he thinks will happen to the sprawl and the box stores and the McMansion villages once the cheap energy that made them possible is no longer available. He has also written that there could very well be a re-urbanization of some cities, based on what Mr. Rubin calls the “price of distance”. If that does happen, it will make sense in some situations for what goods and services are being provided to be concentrated in a city, much like they were prior suburbs and highways. I’m still not planning to relocate to LA but I think we’re more likely to see suburbs and strip malls dry up and blow away before cities. My two cents.

  • Anonymous

    My thoughts exactly.

    I’m fortunate enough to be able to have a mixed solution, since that in an hour train commute I can go from our apartment to a half acre I’ve got with fruit trees, a well (electric and manual), beehives and a shed I can make into something livable.
    Not much, but keeps us stocked in sugar, fruit and some firewood we get nearby.
    Suppose I could easily grow onions, potatos and other low-maintenance root vegetables bramble fruit in our temperate climate if I wanted to.

    Hope more people will come to value what little irrigable, fertile land there is within that acceptable “price distance”. They’ll feel wealthy, even though jobs are scarce.

  • ra

    The topic of Canadian tar sands came up in an interview with Sarah Odland on — the article and interview is by Bill Fallon. She reiterates what Mr. Rubin writes in his book about the status of Canadian tar sands as being economically viable only when oil reaches a certain price:

    “What are the tar sands in Canada and how hard/easy is it to capture oil from them? Cost per barrel vs. more standard extraction?”

    “Canada’s ‘oil sands’ are really bitumen, not oil. Hence the nickname ‘tar sands.’ These were once real oil deposits, but now all the light hydrocarbon components have been stripped off, leaving only the heavy residuals. These deposits are nothing like free-flowing oil well fields; they are large-scale mining operations. And there’s no ‘oil’ to capture. The bitumen has to be thinned and then synthesized into oil by adding hydrogen.

    “There are very large energy and water inputs involved in generating oil from tar sands. Price-wise, breakeven is reportedly around $70 to $75 per barrel. Below that price, the oil stays in the ground.”

  • Anonymous

    If you are planning on buying anything from Italy, do it now while there are still products sitting in warehouses. Dolce & Gabbana handbags, Campagnolo bicycle parts, or BCS tillers – get them now.

  • Anonymous

    If you are planning on buying anything from Italy, do it now while there are still products sitting in warehouses. Dolce & Gabbana handbags, Campagnolo bicycle parts, or BCS tillers – get them now.

  • eugene

    I really don’t think we’ll be pulling 10 million barrels a day from Canada/Mexico. I read several blogs a day and scan the comments. The thing I find interesting is the “from a comfortable distance” of the comments. If we have a problem, we’ll just do this. Like we’ll just switch to diesel or biofuels, we’ll just intensifiy our living situation and a range of other fixes that will happen in a very short period of time. You simply don’t replace 300 million cars (and that’s just the US), move tens of millions of people, lay waste to massive amounts of assets and all the other things talked about in months, more like decades if then. What I see we’re very short of is common sense. The first one is we act like we’re the only humans on the face of the earth and there are 5-6 billion others out there.

    Secondly, do many of you ever think about the time spans involved, the money involved, the energy involved, etc that you so casually state in “we’ll just do this”? The other thing is the endless we “should, could, would, oughta” statements. That’s just wishful thinking. Lots of us have those thoughts but if it’s not happening, it’s not real and unlikely to be.

    Tens of millions of people refuse to face we have a problem. Tens of millions can’t read well enough to know we have a problem. Millions upon millions are stuck in the thought processes of the Middle Ages. Millions are going to solve the problem with a gun. I don’t mean to sound doomy but we’d better start electing politicians who are willing to even talk about the problem. It’s called “We have to admit we have a problem first”. In the US, we’re still at the Glenn Beck/Rush Limbaugh stage.

  • Kirktimpdx

    1. Kadalfi’s Libyan army of mercenaries and their tiny and antiquated “air force” may be able may be able to terrorize and bomb the rebels into submission, but it would be unable to mount any kind of serious defense against any moderate size armed state or organization of states. 2. Libyan oil is not going to stay in the ground for any length of time just because Kadalfi says it is. 3. They Arab Union has recently endorsed a no fly zone over Lybia and the US, France, Great Britain (to name a few) have sold billions of dollars of very sophisticated military hardware to them. 4. Just like Iraq, it’s all about the oil.

    I doubt the US would go this one alone, again, and my guess is that it is probably working very hard right now to encourage a coalition of others to step up. Nobody wins with the loss of any oil anywhere. Supporting the rebels (France has already recognized them) would be not only a convenient way to avoid Arab outrage, but the only way.

  • Abitibidoug

    You are so right. Here’s a clip from the Globe and Mail Report on Business, March 12, page B9:
    A smart approach, experts argue, would follow 2 tracks: encourage greater domestic production while aggressively pursuing a variety of strategies to reduce consumption over time. But there is little confidence that Mr. Obama will succeed where his predecessors have failed.

    I should add we’re no better in Canada than the United States when it comes to dealing with this problem. Most people, including politicians appear oblivious to peak oil and the difficulties it has the potential to create. Until such time as most people actually do get it, your best strategy is to manage your investments in a way to maximize the possibility of gains and decrease probability of losses by taking into account what’s coming.

  • Unc

    Jeff, I am sure your next article will address the tragic situatation in Japan happening now, these people are tough and resource-full.But I am afraid even the Japanese never seen this one coming,our thoughts and prayers are out to the people of Japan.This same thing could happen on the western seaboard of north america, this natural disaster,of this scale will, change dynamics world-wide, it is only in its early stages of comprehension and the ramifications of it will be felt world-wide for many-years to come.The people of Japan deserve a world wide response with respect to assistence and what ever else they may need.Unc.

  • Anonymous

    Looks more like things are developing between Iran (and Iraqs Shiamuslims) and Saudi arabia over Bahrain.

    Who is thinking a regional showdown between these two is possible? At the very least Iran can exasperate the situation dramatically.

    And what is up with the declining oil prices – what do investors think is gonna replace nuclear in the short term in Japan: diesel generators! Good grief!

    And what about the pipe dream about electrical cars! With the moratorium on new nuclear power stations and old ones being taken off line, the energy bottleneck is gone tighten dramatically.

    Right now things are just moving too fast to comment – phew!

  • Anonymous

    all of a sudden, 20% of the worlds oil supply is under threat, anyone prepared? I think this is why peak oil is dodged at the dinner table, how do you switch highly urbanised, fossil fuel dependent systems that have taken decades to construct into totally sustainable ones with minimal cost and effort? A real challenge.

  • God

    Although I try, I cannot see even trace evidence that our leaders are trying to institute a gradual powerdown with any semblance of sanity.

  • God

    I think it is the case that city-dwellers have the potential to use much less energy per capita, so I see that argument in terms of being green. I also agree with you and Kunstler that suburbia is toast; that trend is already taking shape in the foreclosure numbers. Nevertheless, with respect to safety (as in not having your wife raped by a mob of slathering zombies while you’re hustling for food on the streets) I can’t help but believe that rural farm areas and small communities will prove more secure than larger cities.

    Another way of asking that question is that if real productivity again becomes primarily agricultural, what do citizens in densely populated urban centers have to offer as payment for food? Re-establishment of locally based manufacturing perhaps?