The Maldives’ economy could be crippled by rising oil prices sooner than expected, after a leaked cable from the US embassy in Riyadh sparked fears that Saudi Arabian oil reserves could be 40 percent lower than previous estimates.
In the cable dated November 2007, geologist and former head of exploration at Saudi Arabia’s state-owned oil giant Aramco told US consul general John Kincannon that the world’s largest oil company may have overstated its reserves by 300 billion barrels.
Saudi Arabia is believed to sit on almost a quarter of the world’s oil reserves, the export of which directly accounts for almost 50 percent of country’s GDP and indirectly for much of the rest of its industry.
In 2007, Aramco reported that it had 716 billion barrels of total reserves, 51 percent of which was recoverable. Within 20 years the company predicted it would have 900 million barrels, and a recovery rate of 70 percent.
“Al-Husseini disagrees with this analysis, as he believes that Aramco’s reserves are overstated by as much as 300 billion [barrels] of ‘speculative resources’,” the cable reads.
“In al-Husseini’s view, once 50 percent depletion of original proven reserves has been reached and the 180 billion [barrel] threshold crossed, a slow but steady output decline will ensue and no amount of effort will be able to stop it. By al-Husseini’s calculations, approximately 116 billion barrels of oil have been produced by Saudi Arabia, meaning only 64 billion barrels remain before reaching this crucial point of inflection. At 12 million [barrels per day] production, this inflection point will arrive in 14 years.”
Al-Husseini was on Aramco’s board of directors from 1986 until 2004, and sat on the company’s Board of Directors from 1996 to 2004. He was, states the cable, “no doomsday theorist. His pedigree, experience and outlook demand that his predictions be thoughtfully considered.”
A decline in the rate of oil production at a time when demand continues to surge, particularly in the developing world, will cause the oil price to skyrocket.
The Maldivian economy is dependent on oil to such an extent that is spends a quarter of its GDP on it – US$245 million – mostly marine diesel. The 15 percent increase in oil prices over the past five months has led to the Maldives spending almost US$100,000 more on fossil fuels, per day.
Recent turmoil in Egypt – home to the Suez canal, one of the world’s major oil routes which sees 3 million barrels pass through daily – has seen oil prices jump twice past the US$100 a barrel mark in the last few weeks.
Were that price to eventually stick, due to either ongoing Middle East instability or concerns over supply such as those cited in the Riyadh leak, then the Maldives could end up spending upwards of US$230,000 a day on fuel when accounting for possible economic growth of about eight percent during 2011.
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