New details and statistics continue to emerge, pointing to the shrinking geopolitical clout of major Arab oil producers. The countries in the Organisation of Petroleum Exporting Countries (Opec) and its allies in the Opec+ are no longer the sole arbiters of the supply side of the global energy dynamics. Markets are no longer in their absolute control. And this carries major geopolitical consequences for them.

The changing trends are becoming more evident by the day. Courtesy of the shale revolution and resultantly its crude output touching 13.4 million barrels per day (bpd) in recent months, the United States is today the world’s largest oil producer. In contrast, Saudi Arabia’s output is roughly around 9m bpd. Roughly speaking, the US output is 1.5 times the Saudi output.

And while the US is the world’s largest producer, one needs to concede that its consumption is also the highest in the world. This means that despite producing at unprecedented levels, the United States is still an oil importer.

However, unlike the gone-by era, Washington no longer depends on Arab oil producers, Saudi Arabia, the UAE, Kuwait, and the like, to meet its requirements. Roughly 80 per cent of its imports are from the Western hemisphere, says Ken Roberts in a recent Forbes piece.

Imports from Saudi Arabia and Iraq, two of the largest oil producers in Opec, are expected to account for roughly only 10pc of the total US demand

Canada and Mexico alone are now supplying about two-thirds of the US oil imports. Canada is, by far, the largest source of US oil imports, at 55.67pc through October. Mexico is second, at 12.09pc — meaning these two countries account for over two-thirds of all US oil imports by value. Colombia, Brazil, Ecuador, Venezuela, and Guyana are also in the top 10, pushing the total from the Western Hemisphere above 80pc.

On the other hand, in 2023, US oil imports from Saudi Arabia and Iraq — two of the largest Opec oil producers — are expected to account for roughly only 10 per cent of the total US demand. That’s the second lowest percentage on record, according to the latest US Census Bureau data, through October.

Providing some context, Mr Roberts said that for six of the seven years between 2012 and 2018, just the Saudi’s and Iraqi’s accounted for more than 20pc of US oil imports. Today, it is 10pc — roughly half its share of the US oil market in the last decade.

The Opec+ policy of cutting output to balance the markets and putting a floor beneath it is also proving to be a double-edged sword, contributing to the drop in its global market share. It may have helped bring in some support to the crude markets, yet it has also reduced the Opec share in the market, Charles Kennedy said in a recent Oilprice.com piece.

Opec could potentially face further loss of market share in early 2024 following the recent departure of Angola, weakening global crude demand, and the rising output by non-Opec producers, a Reuters recently underlined based on its calculations. Reuters is of the view that Opec’s production is set to slip below 27m bpd without Angola, good for less than 27pc of the total global supply of 102m bpd.

Traditionally, Opec has managed to maintain a market share in the 30-40pc range. However, record shale production by the United States has cut into that deeply, Reuters added. To protect its market share, Opec cannot sustain cutting its output for long. At some point shortly, it may be forced to change its direction, some assert.

While analysing Opec’s market share, one also needs to point out that the US Department of the Interior has signed off on three new oil and gas lease auctions in the Gulf of Mexico. This also indicates that the Saudi and the Opec grip on the oil markets could loosen further, Simon Watkins pointed out in a recent write-up.

These auctions will augment many other new explorations and developments of conventional and shale projects announced over the past year by the US’s big oil and gas firms. This includes the greenlight for US oil giant ConocoPhillips’s $8 billion Willow oil and gas drilling project in Alaska, he emphasised.

Consequently, Saudi Arabia and its Arab oil-producing allies are losing some of their political clout and leverage in Washington. The first indications of this began emerging during the Obama era. In 2015, despite the insistence of the Saudis to actively help the Syrian opposition to get rid of Bashar Al-Assad’s regime, Obama refused.

Further, the Saudis were also baffled by the lack of support by the Obama administration in 2011 to the beleaguered Hosni Mubarak regime in Egypt. Riyadh kept requesting Washington to help prevent the downfall of Mubarak, yet, to no avail.

And the reason behind not conceding to the Saudi requests was apparent. The US was no longer dependent on Saudi oil. Hence, staying oblivious to the requests of the oil-rich Saudi Arabia, Washington preferred taking an independent approach in its policy directions. The missing oil factor was evident in the US calculations.

These were eye-openers to Riyadh. The ongoing shift in Saudi foreign policy, drifting away from the US and striving to foster a still closer relationship with the Chinese camp, is also noteworthy. Riyadh is paying back the US in the same coin.

Further, China, and not the United States, is now the world’s most important and largest crude buyer. Financially speaking, to Saudi Arabia and Opec, Chinese crude purchases are now their lifeline.

And then alternatives to oil are also on the horizon. Electric vehicles are taking over from traditional internal combustion engines in a big way. This is beginning to put pressure on global crude consumption dynamics.

Consequently, the ongoing emphasis throughout the energy-rich Arab world is to diversify their economy away from oil. Most oil producers now realise that to ensure their prosperity, they cannot rely on oil as their sole source of earning. They need to earn through other sources.

Hence, there is a desperate Saudi drive to invest in sectors other than oil — from golf to soccer and Nintendo in Japan to Vale Basic Materials in Brazil.

Interestingly, Saudi Arabia’s Public Investment Fund (PIF) was the top spender among global sovereign wealth funds last year, accounting for about a quarter of the $124bn splashed by state-owned investors, according to a preliminary report by research consultancy Global SWF, CNBC reported.

The research said the Saudi fund boosted its deal activities from $20.7bn in 2022 to $31.6bn in 2023. The PIF, controlled by Saudi Crown Prince Mohammed bin Salman, currently has estimated assets of $776bn, the CNBC report added.

Oil is losing its glitter. It will still be in use for decades, yet it will not remain a strategic product for long. Its implications will be felt in every sector — from economics to politics. We are a witness to this ongoing transition.

Published in Dawn, The Business and Finance Weekly, January 8th, 2024