So I was not exactly devastated to discover that the Saudi's are considering selling off a big chunk of their state oil company just when the price is at a long term low of under $30 a barrel. It couldn't happen to a more deserving authoritarian regime. If the Saudi's end up short of enough cash to buy a high proportion of their male citizens a lazy privileged lifestyle as a reward for nothing much more than happening to occupy a piece of land that has fossils beneath it then I can't say I shall be devastated.
Oil is being driven down in price by a number of factors and some of them could be permanent. Firstly there is a drop in world demand as a product of the post 2007-8 crash. The world economy is always subject to booms and slumps and the world's financial markets always over exaggerate them and produce extreme fluctuations so it is entirely possible that this demand change will prove temporary. Given the volatility of world financial markets and the serious weakness of the available international tools to manage and guide a global economy then it is also entirely possible that this volatility could trigger another nasty financial crash. One is going to come sooner or later unless serious efforts get underway to control and guide markets and there is little sign of the intellectual or political willingness to do what is necessary to fend off another disaster.
Predicting markets is never easy but there now seems to be a major downward pressure on demand for oil which can be relied upon to continue and which can only speed up with time. Technology. Every time something is invented which uses less fuel or operates in ways that completely replaces fossil fuel driven machinery it cuts the global demand for fuel. This trend started relatively slowly with simple things like more efficient engines in cars and was always outweighed by the rapid increase in the overall demand coming from more people getting rich enough to want to buy more stuff. Recently it has started to look as if that equation may be beginning to change. Enough is being invested worldwide in the reduction of cost by making equipment, homes, industry, and transport more fuel efficient that it is having a serious impact on demand. This doesn't mean that demand for energy is actually going down. If it increases at a slower pace than was expected then that is more than enough to have a long term sustained impact on the price of oil.
At the same time alternative ways of producing energy are enhancing supply. We are told constantly that one of the key reasons for the drop in oil prices is that the US has gone in for fracking to such an extent that they have flooded the market. There is some truth in this. You can get a temporary increase in the supply of high production cost fossils this way if you are prepared to pay a heavy environmental cost and that must drive down world prices. You also get the same effect every time a new solar panel is installed or a new wind farm goes up offshore and this effect is sustainable for the long term. Solar panel technology is just starting to reach the point that computers were at in the 1970s. It is a touch clumsy and expensive but it is starting to compete well enough to make large scale production and investment in new and better models highly cost effective. As production runs increase in scale and the huge investment promised at the Paris climate change talks starts to kick in we are going to see a significant increase in the supply of power come through that does not depend on oil. Increase supply and you cut price. Alternative energy can undercut the production costs of conventional oil in ways that fracking never can as it will always be more expensive to drill.
What would any self respecting oil rich dictatorship, sorry Kingdom, do if it spotted this trend? It would start to pump oil like there was no tomorrow because it is entirely possible that there will be no tomorrow for a fossilised technology. And it would sell off a chunk of the future revenue whilst it still can. There is no point in preserving oil reserves for the future if the future is solar or hydrogen driven. Best to sell them off now even in a declining market.
So the Saudis have been pumping oil furiously even though that has drastically cut the price and undermined their own economic model. A country with a huge cheap money source available to it from flogging off fossils is managing to end up with a budget in massive deficit and being forced into drastic economies. They could try stopping funding a war in Yemen. They won't. They could remove some of the excessively easy lifestyles provided by the state for the pampered citizens that they actually deign to recognise. That won't go down well. And so they are left with a huge problem. Just as they need to achieve a smooth transition from one King to another they are about to watch their economy head into a train wreck. They need to pump out as much oil as they can to balance the books and they can't flog it for much because their increase in supply is adding to the problem of already existing downward pressure on price. And that is before Iran starts to sell to a sanction free market. That is not a recipe for a smooth change of ruler and political uncertainty could very well add to the heady brew of economic troubles coming the way of the Saudis.
When an unpleasant authoritarian regime has money to spend it tends to have a lot of friends. When that money dries up those friends don't always prove to be terribly reliable. The old political realities could change just as quickly as the economic climate does. I don't want to over state my case. Money and influence will be pouring into Saudi Arabia for some time to come as the oil pours out. But the direction of development is starting to change. If that means that money goes to the societies which produce the most effective energy efficient equipment and power sources instead of those that rip the most fossils out of the ground then it can only be for the long term good.
Just at the moment so much of politics looks bleak as money flows into the hands of those who can control scarce resources and this drives wars and defence of privilege. It could just be that this is a temporary phase and in the next phase money will tend to flow more strongly into the hands of inventors, scientists and people who are prepared to invest in a secure future. It may not usher in a utopian future but it could just be that we are about to see more and more funds cut off from some deeply unpleasant regimes and financial rewards end up in the hands of those who can think clearly, rationally and scientifically. The way I see it that is a significant win.