New King In Saudi Arabia, Same Old Oil Policy

January 23, 2015 12:46 PM EST

The death of Saudi Arabia’s King Abdullah made international headlines on January 22, raising questions about the future of the Middle East. News of his death briefly rattled the oil markets, but the media attention paid to the event outstrips the significance: it is business as usual in the Arabian Peninsula.

The outpouring of praise for King Abduallah was bizarre. The Washington Post labeled him a “reformer,” and The New York Times said he was a “force of moderation.” U.S. Secretary of State John Kerry took to Twitter to pay his respects. “King Abdullah was a man of wisdom & vision. US has lost a friend & Kingdom of #SaudiArabia, Middle East, and world has lost a revered leader,” he tweeted.

Sure, King Abdullah fought Al Qaeda and joined the World Trade Organization. But he also maintained an iron grip over his monarchy, a country in which women cannot legally drive and risk being beaten by religious police if they go out in public without facial covering.

So in many ways, King Abdullah was more of the same. And his successor, King Salman, will continue conservative geriatric leadership over his oil kingdom. This is evidenced by his speech earlier in the month, on behalf of the late King Abdullah, that Saudi Arabia will face the challenge posed by low oil prices with a “firm will.”

But in reality, the question of what happens to Oil Minister Ali Al-Naimi – and with him, Saudi oil policy – was in some ways much more important than which specific successor takes the throne. For now, Al-Naimi appears set to stay on according to the AP, at least through OPEC’s next meeting in June.

The Saudi government quickly assured the world that its oil policy will remain unchanged. The smooth succession and adherence to current policy calmed the oil markets, which saw prices retreat after briefly jumping by nearly 2 percent.

As a result, Saudi Arabia will continue its pursuit of market share – oil output will remain steady in the face of depressed prices.

The Saudi budget breaks even at somewhere around $63 per barrel, suggesting they will run a significant deficit this year. That is something the kingdom is willing to take on, given the $800 billion in cash reserves it has stashed away for a rainy day.

Rich Nation, Poor People: Saudi Arabia by Lynsey Addario

Fatima Hazazi stands in front of boxes of medicine she requires monthly to treat her kidney problem at home in Riyadh, Saudi Arabia, March 2, 2013. Like many families across Saudi Arabia who are barely scraping above the poverty line each month, Fatima and her family rely on the hope of the charity of others to survive. (Credit: Lynsey Addario/ VII) — Fatima Hazazi stands in front of boxes of medicine she requires monthly to treat her kidney problem at home in Riyadh, Saudi Arabia. Despite the extremely wealthy sector of society in Saudi Arabia, and the the veneer of widespread affluence projected outside the Kingdom, severe poverty is as much a part of life in Riyadh as wealth.Lynsey Addario—Getty Images Reportage for TIME

Saudi children play on old furniture outside of the home where they live in squalor in a neighborhood in South Riyadh, Saudi Arabia, March 1, 2013. Like many families across Saudi Arabia who are barely scraping above the poverty line each month, this family relies on the hope of the charity of others to survive. (Credit: Lynsey Addario/ VII) — Saudi children play on old furniture outside of the home in which they live in a poor neighborhood in South Riyadh.Lynsey Addario—Getty Images Reportage for TIME

One of twelve children living in a house where Yayeh Mussawa rents with his family plays in squalor in a neighborhood in South Riyadh, Saudi Arabia, March 1, 2013. Like many families across Saudi Arabia who are barely scraping above the poverty line each month, this family relies on the hope of the charity of others to survive. (Credit: Lynsey Addario/ VII) — One of twelve children living in a house that Yayeh Mussawa rents with his family in South Riyadh. Like many across Saudi Arabia who are living barely above the poverty line, Mussawa's family relies on charity to survive. Lynsey Addario—Getty Images Reportage for TIME

Saudis beg in a line on a street known to locals as 'the beggers' street,' in a neighborhood in South Riyadh, Saudi Arabia, March 1, 2013. Like many families across Saudi Arabia who are barely scraping above the poverty line each month, many poor Saudis rely on the hope of the charity of others to survive. (Credit: Lynsey Addario/ VII) — Saudis beg in a line on a street known to locals as 'The Beggars' Street,' in South Riyadh.Lynsey Addario—Getty Images Reportage for TIME

Saudi children do dishes and live in squalor in a neighborhood in South Riyadh, Saudi Arabia, March 1, 2013. Like many families across Saudi Arabia who are barely scraping above the poverty line each month, this family relies on the hope of the charity of others to survive. (Credit: Lynsey Addario/ VII) — Saudi children do the dishes in a home in South Riyadh. Lynsey Addario—Getty Images Reportage for TIME

Selma Saleh, a poor Saudi woman, sits on her bed in squalor in a neighborhood in South Riyadh, Saudi Arabia, March 1, 2013. Like many families across Saudi Arabia who are barely scraping above the poverty line each month, this family relies on the hope of the charity of others to survive. (Credit: Lynsey Addario/ VII) — Selma Saleh, an impoverished Saudi woman, sits on her bed in her home in South Riyadh. Lynsey Addario—Getty Images Reportage for TIME

Matara stands with her two boys next to a sink without water, where she lives in squalor in a neighborhood in South Riyadh, Saudi Arabia, March 1, 2013. Like many families across Saudi Arabia who are barely scraping above the poverty line each month, this family relies on the hope of the charity of others to survive. (Credit: Lynsey Addario/ VII) — Matara stands with her two boys next to a sink without water in her home in South Riyadh. Lynsey Addario—Getty Images Reportage for TIME

A young man begs on the streets in Riyadh, Saudi Arabia, March 3, 2013. Despite an extremely wealthy sector of society in Saudi Arabia, and the the veneer of widespread affluence projected outside the Kingdom, severe poverty is as much an aspect of life in Riyadh as wealth. (Credit: Lynsey Addario/ VII) — A young man begs on the street in Riyadh.Lynsey Addario—Getty Images Reportage for TIME

Saudi citizens rest after presenting Saudi Billionaire HRH Prince al Waleed bin Talal with petitions for his help at a desert camp outside of Riyadh, in Saudi Arabia, February 27, 2013. Like many families across Saudi Arabia who are barely scraping above the poverty line each month, many poor Saudis rely on the hope of the charity of others to survive. (Credit: Lynsey Addario/ VII) — Saudi citizens rest after presenting Saudi billionaire, HRH Prince al Waleed bin Talal, with petitions for his help at a desert camp outside of Riyadh.Lynsey Addario—Getty Images Reportage for TIME

Billionaire HRH Prince Waleed bin Talal, greets Saudi citizens at a desert camp outside of Riyadh to accept their petitions for his help, in Saudi Arabia, February 27, 2013. Like many families across Saudi Arabia who are barely scraping above the poverty line each month, many poor Saudis rely on the hope of the charity of others to survive. (Credit: Lynsey Addario/ VII) — Saudi billionaire, HRH Prince Waleed bin Talal, greets Saudi citizens at a desert camp outside of Riyadh to accept their petitions for his help.Lynsey Addario—Getty Images Reportage for TIME

Young Saudi women pray in a friend's home before going out to dinner in Riyadh, Saudi Arabia, February 25, 2013. Though statistics are difficult to confirm, youth unemployment and poverty are on the rise in Saudi Arabia. While society is increasingly open to women in the workforce, there are still limited jobs in which women and men can work side by side. There are a great number of highly educated Saudis who can not find work suitable for their qualifications. (Credit: Lynsey Addario/ VII) — Young Saudi women pray in a friend's home before going out to dinner in Riyadh. Though statistics are difficult to confirm, youth unemployment and poverty are on the rise in Saudi Arabia. While society is increasingly open to women in the workforce, there are still limited jobs in which women and men can work side by side. There are a great number of highly educated Saudis who can not find work suitable for their qualifications.Lynsey Addario—Getty Images Reportage for TIME

A Saudi woman bids on an Arabian Horse at an auction outside of Riyadh, Saudi Arabia, March 3, 2013. Despite an extremely wealthy sector of society in Saudi Arabia, and the the veneer of widespread affluence projected outside the Kingdom, severe poverty is as much an aspect of life in Riyadh as wealth. (Credit: Lynsey Addario/ VII) — A Saudi woman bids on an Arabian Horse at an auction outside of Riyadh.Lynsey Addario—Getty Images Reportage for TIME

Saudi men pray at dusk at a camel market outside of Riyadh, Saudi Arabia, March 3, 2013. Despite an extremely wealthy sector of society in Saudi Arabia, and the the veneer of widespread affluence projected outside the Kingdom, severe poverty is as much an aspect of life in Riyadh as wealth. (Credit: Lynsey Addario/ VII) — Saudi men pray at dusk at a camel market outside of Riyadh.Lynsey Addario—Getty Images Reportage for TIME

Saudis stand around after an auction for Arabian Horses at a club outside of Riyadh, Saudi Arabia, March 3, 2013. Despite an extremely wealthy sector of society in Saudi Arabia, and the the veneer of widespread affluence projected outside the Kingdom, severe poverty is as much an aspect of life in Riyadh as wealth. (Credit: Lynsey Addario/ VII) — Saudis linger after an auction for Arabian Horses at a club outside of Riyadh. Lynsey Addario—Getty Images Reportage for TIME

Will Plunging Oil Prices Crash The Stock Market?

When oil crashed in 2008 all hell was breaking loose. Lehman Brothers went up in smoke and stocks were in a nosedive. Oil has once again crashed -50% in only 6 months but equities haven’t followed – at least not yet! Will stocks hold up going forward? You might find it hard to believe just how much wealth could have been created last time this happened. If we learn from the past, this could be a second chance to make an absolute fortune.

The November 2014 decision to maintain output, followed by the collapse in oil prices, fueled some rather triumphalist speculation about how U.S. shale killed off OPEC. Yet the strategy Saudi Arabia laid out in November, which will be continued by King Salman, demonstrates full well Saudi Arabia’s influence over oil markets. As the only significant source of spare capacity in the world, it alone has the ability to voluntarily ramp up or down several million barrels of oil per day. For now, it is keeping the taps open, forcing a contraction from others.

And it has more staying power than U.S. shale producers. The number of active rigs in the U.S. fell by 209 between December and mid-January 2015. That is the fastest decline since data collection began by oil services firm Baker Hughes, dating back to 1987. Production cuts will eventually follow.

“Everyone tells us to cut. But I want to ask you, do we produce at higher cost or lower costs? Let’s produce the lower cost oil first and then produce the higher cost,” OPEC Secretary General Abdullah al-Badri said at the World Economic Forum in Davos.

Saudi Arabia is willing to wait out low prices. That means that the pain for U.S. shale producers should continue, and will likely grow worse before it gets better.

Claudio Descalzi, the CEO of Italian oil giant Eni, called on OPEC to cut oil production in order bring supply and demand into balance. “What we need is stability… OPEC is like the central bank for oil which must give stability to the oil prices to be able to invest in a regular way,” he said in Davos, according to Reuters. Descalzi says that OPEC’s failure to cut production could lead to oil prices skyrocketing to $200 because many private oil companies will push off drilling.

But that is exactly what Saudi policy could be aiming for: maintain market share, force others to cut back production, and reap the rewards of higher prices once they do.

Saudi Arabia’s entire economy is based on oil. The government brings in 85 percent of its revenues from petroleum exports. Whether it is Abdullah or Salman, the Saudi royal family’s preeminent concern is to ensure the longevity of its petrol kingdom. For now, that means no change in its current oil strategy.

This post originally appeared on OilPrice.com.

Read more from Oilprice.com:

Does The Oil Market Care Who Sits On Saudi Throne?

Market Mayhem Has Some Way To Go

The 8 Major Geopolitical Catalysts Of 2015

Rich Nation, Poor People: Saudi Arabia by Lynsey Addario

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