King Fahd has died. He was the fifth member of Saudi Arabia's Al Saud family to sit on the throne since the country's unification in 1932 under King Abdul Aziz al Saud. His brother, Crown Prince Abdullah, has succeeded Fahd as expected.
In spite of the fact that Abdullah has effectively ruled Saudi Arabia in King Fahd's place since 1995 when Fahd suffered a stroke, oil traders were unnerved by the news of Fahd's death. Crude oil futures hit a record $62.30 a barrel in trading today before settling at $61.55.
Saudi Arabia has the world's largest proven oil reserves--over 260 billion barrels--and, with production at 10.5-11.0 million barrels per day, is the world's top producer. Roughly 80 percent of the Kingdom's revenues come from oil. In spite of its incredible oil wealth, however, Saudi Arabia is, politically, one of the eighteen states that the human rights organization Freedom House considers "the worst of the worst." It also has a 30 percent unemployment rate, serious problems with corruption, and a large population of fundamentalist Muslims. It is a volatile mix, which accounts for the unease that oil traders feel even in the face of a long-expected and (so far) orderly political transition.
Here's a little something to think about the next time you fill the tank of your SUV: without the Saudis, those of us in the United States could easily be paying over $5.00 per gallon. Our nation's economic health is dependent on the stability of a medieval monarchy. Thank goodness the energy bill Congress just passed will reduce our dependence on imported oil. (Not really. We'll go from 58 percent imported oil today to 68 percent imported oil in 2025.)