Why the U.S. is stuck with Saudi Arabia

So why does the U.S. put up with Saudi Arabia? The simplest explanation, of course, is oil. The kingdom is the largest and most important producer in the Organization of Petroleum Exporting Countries (OPEC), the bloc that controls around 40 percent of the world’s oil. Because the United States was until recently the world’s top oil importer, an alliance with Saudi Arabia made geopolitical sense.

The recent shale oil boom in the U.S. has led Washington to hope that before long, its alliance with Riyadh won’t be necessary. The U.S. now pumps more than 9 million barrels of oil per day, which almost matches the amount in Saudi Arabia. Observers project that in five years, the U.S. will get 80 percent of its oil from North and South America and will be mostly self-sufficient by 2035. The OPEC decision to not cut supply in response to falling oil prices signaled that the North American boom had fundamentally changed the commodity’s global logic.

Saudi Arabia is well-positioned to survive a sustained drop in the price of oil, currently at $48.71 a barrel. Riyadh generally needs oil to trade at $80 a barrel in order to balance its budget. But with $750 billion stashed away in reserve, the kingdom faces little pressure to reduce supply and raise the price. In addition, Saudi Arabia and fellow OPEC members Kuwait and the United Arab Emirates have proved reserves of 460 billion barrels. The United States, by contrast, has proved reserves of just 10 billion—and the U.S. Energy Information Agency forecasts that American shale oil production will plateau in 2020.

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