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“Ahead of an OPEC meeting in Vienna next week, there are some contradictory theories about why Saudi Arabia is content to keep oil cheap for the time being. One is that the Saudis want to nip the U.S. oil boom in the bud. American shale oil is more expensive to produce and needs high prices to remain competitive. As one analyst put it when the kingdom cut prices for U.S. customers earlier this month, ‘the Saudis have basically declared war on the U.S. oil producers.’
But there’s a competing narrative, or ‘conspiracy theory’ if you prefer, that the Saudis are waging war in cooperation with the United States, against their mutual enemies Russia and Iran.
The problem with this analysis is that there’s no “or” here. The Saudis have the largest production capacity, and they are using it to control the market. That’s it. Oil production is their niche in the global economy. They are using market power to defend their position. That is not news, nor should it come as a surprise. Nor, for that matter, is it the first time they’ve done it. Their actions may well be the final proof of the success of American production—the market leader has had to take steps to bring its new competitor under control—but that’s still not telling us anything we didn’t already know.