Middle East Energy Dynamics
Why the Persian Gulf still dominates global oil markets, how petrostates are diversifying, and the risks of the energy transition for the region.
The Gulf's Enduring Dominance
Despite the shale revolution and the rise of renewables, the Persian Gulf remains the center of gravity for global oil. Saudi Arabia, Iraq, the UAE, Kuwait, and Iran together hold roughly 48% of the world's proven oil reserves and account for about 30% of global production. More critically, Gulf producers have the lowest production costs in the world -- as low as $3-5 per barrel in Saudi Arabia, compared to $40-60 for deepwater or oil sands projects. As higher-cost producers decline, the Gulf's market share is likely to grow.
Saudi Arabia's influence operates through OPEC and OPEC+, the alliance with Russia formed in 2016. Saudi Aramco, the world's most profitable company, generated over $160 billion in net income in 2022. The kingdom uses production cuts and surges as tools of market management and foreign policy, as it did when it briefly cratered prices in early 2020 in a dispute with Russia.
