Prince Abdulaziz bin Salman, Saudi Arabia’s energy minister, crowed at Thursday’s OPEC meeting that the American energy revolution is over, OPEC would soon regain control over oil markets, and “Drill, baby, drill is gone forever.”
“Drill, baby, drill” began as a Republican campaign slogan in 2008, popularized by vice-presidential candidate Sarah Palin, although it was coined by then-Lt. Governor of Maryland Michael Steele. The basic idea was that aggressively developing America’s energy resources would bring economic prosperity and make the United States less dependent on foreign oil.
History vindicated the Republican position once the American energy industry really was unleashed by the revolutions in shale oil and fracking. Rarely has a pithy political slogan so utterly defeated the people who once sneered at it.
Falling oil prices, driven by surging American supply, not only propelled the robust American economy that would be ravaged by the Wuhan coronavirus in 2020; they were a powerful driver of geopolitical change. Among other things, cheaper oil weakened the malevolent regime in Iran and helped propel reform in Saudi Arabia, where plans to shift the economy away from oil and renovate the Kingdom’s politics to attract more foreign investment suddenly took on new urgency.
According to the Saudi energy minister, as quoted by Fortune, that era of American energy independence and cheap energy has come to a end:
“‘Drill, baby, drill’ is gone forever,” said Prince Abdulaziz, who’s orchestrated the revival of the oil market after last year’s catastrophic collapse.
His swagger comes mixed with a good dose of diplomatic tension: Russia, Saudi Arabia’s most important OPEC+ partner, has tried to convince Riyadh for several months to increase output, fearing that rising oil prices would ultimately awaken rival shale producers. The Saudis are certain the American industry has reformed itself.
If the prince is right, OPEC+ will be able to both push prices higher now and recover market share later without worrying that rivals in Texas, Oklahoma and North Dakota will flood the market. But if Riyadh has miscalculated — and it’s got shale wrong before — the danger will be lower prices and production down the line.
According to Fortune, other OPEC ministers largely went along with the Saudi gamble on price increases, but “trouble may be brewing” because OPEC may have once again “underestimated its American rivals, who year after year produced more than most expected.”
Fortune quoted analysts who noted American production is lower at the moment mostly because U.S. companies want prices to increase as much as OPEC does, and “there’s nothing really stopping them” from ramping production up again after prices stabilize except for the heavy regulatory hand of President Joe Biden.
“Under pressure from shareholders, shale producers have promised restraint, putting profits before the growth they relentlessly pursued during the boom years. Although drilling has risen from the lows of 2020, it’s well below previous levels. In addition, President Joe Biden is trying to temper the worst excesses of the industry, including the indiscriminate natural gas flaring that’s a byproduct of shale’s success,” Fortune noted, greatly underselling how much damage Biden can do to an industry with the stroke of his pen.
Arab News talked to other analysts who noted energy demand is likely to increase as America and other developed economies emerge from coronavirus lockdown, although price increases from the surge in demand will likely be delayed by large backlogged inventories of oil that are ready to ship.
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