The head of Saudi State oil firm Aramco, Khalid al-Falih, said that his country is concerned about the effect of high crude prices on the global economic recovery. He also said, according to Reuters, that “People need to know that there are millions of barrels per day of spare capacity available.”
Falih’s comments are a fine example of the fact that talk is cheap and crude is expensive. The Saudis have made a great deal of the fact that they can expand production. The nation said it increased exports when trouble in Libya cut oil supplies from that country.
The Saudis try to have the best of both worlds for now. They can insist that they are heroes because of the help they have given as the turmoil in Libya has worsened. But, they are the greatest single beneficiary of high oil prices at the same time. The Saudi treasury has filled up faster than the nation’s rulers probably expected. Who would have thought Brent crude would be over $100 for any period, let along over $12o?
It is impossible to tell what the true motivation of the Saudi government is. A recession could cut crude demand, but it may not do so by much. The requirements for oil are too great in Asia, and the developed nations need a great deal of oil even if their economic growth reverses. The Saudis can increase production when another global recession hits, if one does. Until then, they can become richer than they already are.
Douglas A. McIntyre
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