On this day in 2011, The Guardian newspaper in London published an article that was directly informed by a series of WikiLeaks cables, claiming that Saudi Arabian reserves of crude oil were far less plentiful than publicly reported. The reports, if substantiated, could have a huge impact on global oil prices, and would ask serious questions of the integrity of the Saudi Arabian oil industry.
John Vidal’s article, which actually appeared on The Guardian’s website late on the evening of February 8th, was called “WikiLeaks Cables: Saudi Arabia cannot pump enough oil to keep lid on prices.” It outlined the revelation that Saudi and American diplomats had secretly discussed the possibility that oil reserves in the Middle Eastern Kingdom could be as much as 40% lower than claimed.
The claims of reduced oil capacity were mainly due to the alleged reports of Sadad al-Huseini, the former head of oil exploration at Aramco, Saudi Arabia’s state-owned oil company. According to the leaked US Embassy cables, obtained by the WikiLeaks website between 2007 and 2009, al-Huseini had suggested in a private meeting with American diplomats that oil reserves were nowhere near as vast as publicly claimed, and that an increase in daily productivity would be difficult to achieve. The suggestion was that Aramco would be unable to arrest the soaring prices of crude oil on the international market, and that rapid price inflation was inevitable.
The report also claimed that the global oil industry might be approaching a situation known as “Peak Oil.” This is the term used to describe the point where global oil production reaches its upper limit. This would mean if demand for oil increased, the global oil industries as a collective would not be able to meet that demand. Without sufficient quantities of oil to supply demand, the price would ultimately spiral upwards. If Saudi oil reserves were lower than admitted, then Peak Oil and its associated problems might be closer than previously thought.
The mood of the US diplomats on hearing al-Huseini’s predictions was demonstrated in a follow-up memo a few months after the initial statement was made: ‘Our mission now questions how much the Saudis can now substantively influence the crude markets over the long term. Clearly they can drive prices up, but we question whether they any longer have the power to drive prices down for a prolonged period’.
The impact of the leaked documents could have had catastrophic repercussions for the global oil industry, but in the end the impact was softened by al-Huseini’s response to the leak. Perhaps compelled by his seniors within the Saudi oil industry, al-Huseini issued a statement denying he had downplayed Saudi Arabia’s oil producing capacity, and stating that he had been deliberately misquoted and misrepresented by his American contacts.
Although the memos obtained by WikiLeaks, and subsequently published in The Guardian, were embarrassing for Aramco, it seems for the time being, a crisis had been averted.
Photo Credit: © Art Directors & TRIP / Alamy
Photo Caption: An aerial view of the massive Ras Tanura oil refinery in Saudi Arabia.