VZCZCXRO6740
PP RUEHDE RUEHROV
DE RUEHRH #0112 0141518
ZNY CCCCC ZZH
P 141518Z JAN 09
FM AMEMBASSY RIYADH
TO RUEHC/SECSTATE WASHDC PRIORITY 9907
INFO RUEHXK/ARAB ISRAELI COLLECTIVE
RUEHHH/OPEC COLLECTIVE

C O N F I D E N T I A L RIYADH 000112 
 
SIPDIS 
 
DEPT FOR NEA/ARP(HARRIS) 
 
E.O. 12958: DECL: 01/14/2019 
TAGS: EPET PGOV KWBG KBCT SA
SUBJECT: SAUDIS PREPARE TO CROSS PRODUCTION RUBICON BUT 
ESCHEW EMBARGO 
 
REF: A. RIYADH 71 
     ¶B. RIYADH 81 
     ¶C. 08RIYADH1880 
 
Classified By: CDA David Rundell for reasons 1.4(b) and (d). 
 
¶1. (C) 
 
Key points 
---------- 
 
-- Saudi Oil Minister announced a significant oil production 
cut that might bring production below 8 million barrels per 
day for the first time in years. 
 
-- The Foreign Minister reiterated earlier the Kingdom's 
policy that oil exports will not be used as a weapon. 
 
Comment 
------- 
 
-- We believe the Saudis are correctly concerned that oil has 
stuck in the $30 range for so long that there will be 
negative repercussions for its budget (Ref C). 
 
-- The oil cut is a "two-for" for the Kingdom:  it slows the 
slide in oil price, and it will resonate with those looking 
to show the SAG has clout with energy markets. 
 
End key points and comment. 
 
Oil minister announces production cuts 
-------------------------------------- 
 
¶2. (C) Oil Minister Ali Al-Naimi announced in India January 
13 that Saudi Arabia would reduce oil production further in 
February, beneath its OPEC commitments, to help stop prices 
from falling further.  This might bring Saudi production 
below 8 million barrel/day (mbd) to the country's lowest 
daily production in more than six years.  According to the BP 
statistical review of world energy, the country's annual 
average daily production has not gone that low since 1982-90 
when Saudi Arabia suffered a veritable economic depression 
mainly due to sustained low oil prices. 
 
¶3. (C) Our contacts say the SAG has sought to avoid producing 
less than 8 mbd not only for psychological and budgetary 
reasons but also because of the cut in associated gas 
production that would result.  With limited unassociated gas 
reserves, Saudi Arabia depends on this gas associated with 
oil production to produce electricity, water, and 
petrochemicals.  In any event Naimi's statement follows King 
Abdallah's public statement in November that $75/barrel was a 
"fair" price.  With prices now less than $40/barrel, Naimi's 
statement should be construed as an attempt to jawbone oil 
markets higher and reiterate the SAG's strong intent to, as 
Naimi said, "do what it takes to bring (prices) back to 
balance." 
 
Foreign minister rejects oil embargo 
------------------------------------ 
 
¶4. (C) A week before Naimi's statement, and halfway around 
the world, Foreign Minister Prince Saud Al-Faisal told 
reporters in New York January 7 that Saudi Arabia would 
continue its longtime policy of refusing to use its oil 
exports as a weapon.  Responding to a call by an Iranian 
military commander for Muslim countries to impose an oil 
embargo on Israel's allies in response to the Qnflict inQ 
Gaza, Prince SauQreportedlQsaid, "The oil producers who 
need their income ... are not going to do that. ... The 
important thing (is), oil is not a weapon.  You can't reverse 
a conflict by using oil."  (Note:  Saudi Arabia has not 
sought to use oil as a weapon since the mid-1970s, with the 
arguable exception that they have sometimes increased 
production to maintain market stability, to the frustration 
of some of its fellow producers, such as Iran.)  There is no 
sign of the Saudi government reversing this policy, despite 
the growing clamor over Israel's operations in Gaza. 
 
¶5. (C) Interestingly, a contact working for Chevron told 
econoff January 9 that the SAG had unexpectedly downgraded 
the visibility of a ceremony commemorating the renewal of 
Chevron's concession in the partitioned neutral zone between 
Saudi Arabia and Kuwait.  He blamed events in Gaza for the 
Saudi decision. 
RUNDELL