Special to WorldTribune.com

Saudi Arabia’s risky gamble to break the U.S. shale oil (fracking) industry has not only failed, but sent the Saudis and OPEC into a downward spiral that will “be in existential crisis by the end of the decade,” a UK analyst said.

“If the oil futures market is correct, Saudi Arabia will start running into trouble within two years,” Ambrose Evans-Pritchard wrote in the Daily Telegraph on Aug. 5.

Evans-Pritchard and other analysts believed the Saudi strategy was to “starve” the American shale oil industry, which not only has become OPEC’s main competition but earlier this year became the world’s leading oil producer.

The Saudis gambled that the U.S. could not produce shale profitably at rates below $60-$70 a barrel. The kingdom’s assumption was that if prices were maintained at those levels, U.S. shale producers would shut down.

But the Saudis were wrong, Evans-Pritchard wrote. “If the aim was to choke the U.S. shale industry, the Saudis have misjudged badly, just as they misjudged the growing shale threat at every stage for eight years.

“The problem for the Saudis is that U.S. shale frackers are not high-cost. They are mostly mid-cost. Advanced pad drilling techniques allow frackers to launch five or ten wells in different directions from the same site. Smart drill-bits with computer chips can seek out cracks in the rock. New dissolvable plugs promise to save $300,000 a well.”

Analysts also contend that the impending Saudi oil crisis will all but shut down the Sunni Muslim “money machine” that bankrolls Arab and Muslim causes worldwide. The Palestinian Authority, which has been a major recipient of aid from the Saudi government and Gulf oil kingpins, is likely to feel the full brunt of the Saudi slip.

“The government can slash investment spending for a while — as it did in the mid-1980s — but in the end it must face draconian austerity,” Evans-Pritchard wrote. “It cannot afford to prop up Egypt and maintain an exorbitant political patronage machine across the Sunni world.”

The Saudis continually increased production even though prices fell to the point where oil now regularly trades in the area of $50 a barrel, a third of its price just a few years ago.

Evans-Pritchard quoted a Saudi oil expert as admitting that the policy has failed. “The policy hasn’t worked and it will never work,” the expert said.

“OPEC now faces a permanent headwind,” Evans-Pritchard wrote. “Each rise in price will be capped by a surge in U.S. output. Saudi Arabia is effectively beached. It relies on oil for 90 percent of its budget revenues. There is no other industry to speak of, a full fifty years after the oil bonanza began.”

  Ambrose Evans-Pritchard, fracking, Fracking revolution makes U.S. top oil producer, OPEC, precipitates Saudi crisis, WorldTribune.com