For more than 70 years, the United States and Saudi Arabia have maintained an alliance that many believe has hinged on the exchange of U.S. military protection for access to Saudi Arabia’s plentiful – and cheap – oil.

But this theory should be met with a pinch of skepticism. To begin, Canada has historically imported more oil to its North American neighbor than any other country. And, if the United States only wanted fellowship with Saudi Arabia to access its oil, the shale revolution would’ve rendered that friendship useless.

Amb. Robert Jordan's memoir

Robert Jordan, former U.S. ambassador to Saudi Arabia, now the author of Desert Diplomat: Inside Saudi Arabia Following 9/11 and current diplomat-in-residence at Southern Methodist University, shared his insights with Rigzone about the U.S.-Saudi affair and going forward, what it means to the oil industry – both its investments and its workforce and how it goes much deeper than the Middle East’s oil reserves.

Rigzone: How has the shale renaissance impacted Saudi Arabia’s relationship with the United States?

Amb. Robert Jordan: I think the Saudis probably believed initially that they could knock out U.S. shale producers entirely. They failed to calculate the force of American ingenuity and technology. So the shale producers, over a very short period of time, were able to complete their wells in many fewer days than previously, which made them much more cost effective and efficient.

Now, a number of the high cost shale producers did fall by the wayside. But the shale industry itself survived and, over a period of a few years, America’s shale production accounted for a huge percentage of the overall increase in crude oil production in the world.

So I think the Saudis miscalculated, in a way. I think it probably ruffled feathers in the United States to some degree. A lot of the media accounts suggested that the Saudis were trying to use oil as a political weapon when in fact it was largely a matter of trying to maintain their market share and not have shale producers take that away from them.

It’s kind of like McDonald’s producing hamburgers and being told they’re the ones who should cut production, and the effect of that would be that Burger King gets those customers. I think that was an important part of how the Saudis approached it. It had the additional benefit for the Saudis, I think in their view, of also causing a tremendous amount of pain to Iran and Russia.

So, I don’t think the overall shale revolution has damaged U.S.-Saudi relations in a long-term sense, but I do think it has raised some eyebrows that need some further understanding.

Rigzone: How much of relationship depends on cheap oil and military production?

Jordan: The traditional view of the relationship with the Saudis is that it’s based on oil, God and real estate. That was certainly the arrangement the United States has had with the Saudis beginning with Franklin Roosevelt in 1945. But it’s about much more than oil.

We have had a number of periods in the relationship in which our interests have been closely aligned. If you look back at fighting communism, for example, that was a tremendous unifying factor between the Americans and the Saudis. We even went so far as to join together in fighting the Soviet invasion of Afghanistan by jointly financing jihadi soldiers – some of whom were led by Osama bin Laden – to go into Afghanistan. This began in the Carter administration and continued into the Reagan administration.

We have more recently joined together in fighting terrorism, particularly since 9/11, and some of the attacks in Saudi Arabia that occurred in the years following that.

These have been unifying factors. I think we have a unifying factor now in our competition with and adversity to, Iran. It used to be the Saudis would always tell me when I was ambassador that everything bad that could happen in the world was the fault of the Israelis. Now, everything bad is the fault of Iran.

Another important factor is real estate. You can’t really project force anywhere in the Middle East without flying over Saudi Arabia. There is a strategic advantage in having a strong ally that will allow us to fly over the territory – to have bases nearby if not on their soil – and to have strong military cooperation, which we do.

Rigzone: If the United States becomes energy independent, would it still be interested in that part of the world simply because it wants to be close to watch Iran?

Jordan: First of all, being energy independent is a slogan that ignores the reality that oil is fungible and the price of oil is a worldwide price. Even if America could produce all its own oil for its own use, the rest of the world would not. And the United States has a vital national security interest in the economy of the rest of the world.

For example, if Iran shuts down the Strait of Hormuz, or if the Saudi oil fields are taken over by Iran or ISIS or some other adversary, the price of oil is $200 a barrel … that would completely devastate the economy, probably, of most of the rest of the world. They then could no longer buy American goods and services. Our intertwining economies are equally affected. It’s not as if we’re an island that can ignore what happens to the price of oil or the supply of oil for the rest of the world.

We still have common interests, with the Saudis, for example. Iran is a big part of that right now. But it’s not the only common interest. We also have a common interest in fighting terrorism. The Saudis, I think, don’t get as much credit as they deserve for sharing intelligence – they have helped us avoid some major attacks in the United States by their sharing of intelligence. We have a joint operation center in Riyadh with the Saudis where we sit down shoulder to shoulder and review intelligence in real time. We have a tremendous amount of military cooperation, training their military, providing them with arms and ammunitions – all of which is designed to make them at least a factor in resisting aggression from external forces. So what would it look like if the Saudi regime went down? It would probably look a lot like Libya very shortly and that’s not in America’s interest.

Rigzone: Saudi Arabia’s Vision 2030 plan to move its economy beyond its dependency on oil … is that going to make OPEC (Organization of the Petroleum Exporting Countries) less relevant or Saudi’s interest in being in OPEC less relevant?

Jordan: I think OPEC has already made itself less relevant. The Saudis probably have that same view. They have not been able to control market forces. Iran is resisting any suggestion of freezing production because they want to get back up to pre-sanctions production levels. The discipline within OPEC is minimal, and it makes up for an increasingly smaller share of world production.

I do think the Vision 2030 objective, if successful, would render OPEC even less relevant and would provide the Saudis with a much more diverse economy that is less dependent on oil, but at the same time, recognizes the enduring value of the vast oil reserves probably for several generations.

Rigzone: If Saudi is less dependent on oil, and therefore less interested in OPEC, what does OPEC do? Does it go away, and then would something else replaces it?

Jordan: I think OPEC could morph into a research organization, a collaboration organization – something less in the nature of a cartel – and more the nature of a cooperative group of producers who are learning more about efficient ways to produce hydrocarbons and cooperate in that regard.

Rigzone: Did shale kill OPEC?

Jordan: Some people were arguing that OPEC was on its way even before the shale revolution … There was so much cheating. The non-OPEC forces were such a competing factor even before the U.S. surge. The Russians and others for example were really out there doing what they could to get their share of the market. So it was not as effective as it had been several decades ago.

Rigzone: During your time as ambassador, did you ever anticipate that Saudi Arabian Oil Company (Saudi Aramco) would pursue an IPO?

Jordan: No. Never. And I still have some skepticism. Even to spin off a 5 percent share of Aramco will require massive disclosures even under the Saudi stock exchange. Their rules are modeled, to some degree, on the London and New York stock exchanges. To register a security like that in the United States or England would certainly require perhaps years of accounting data, reserve estimates, sources and uses of funds and the kinds of disclosure that, up to this point, Aramco has been very reluctant to make. Now I know Deputy Crown Prince Mohammed bin Salman has been saying that what they want to do is become more transparent. Whether they can do that or not remains to be seen.

Rigzone: What should the rest of the world understand about the oil economy in Saudi Arabia?

Jordan: It’s important to recognize the historical background of what I would call ‘the curse of oil.’ When oil was initially discovered in Saudi Arabia, it was Standard Oil of California, later Chevron, and a consortium of American companies that became the Saudi-American Oil Company, which later morphed into Saudi Arabian Oil Company, or Saudi Aramco.

But in the 1970s, the Saudis decided – as resource-rich countries do – to nationalize their oil industry. They phased out the foreign ownership and phased in Saudi ownership. When things like this happen in other underdeveloped countries, they tend to disinvest in the other industries that they had previously focused on and throw most of their investment into this rich cash cow. This left manufacturing and other industries that employed more Saudis, including Saudi women, to neglect. And led to, I think, an erosion in the work ethic, an erosion of a sense that you’ve got to go to work every day. If you look at some of the oil-poor countries in the Middle East, like Jordan, the Palestinian territory and others, they have a fairly high degree of human capital and they have to scratch and scramble for everything they get. Many of the technocrats who run places like Saudi Arabia are from those other countries. So the Saudis have to recapture that sense of urgency in finding jobs; they have to have an education system that provides employable youth; and they have to have jobs.

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