Abu Dhabi: Saudi Arabia cannot repeat an oil embargo similar to that of 1973 as the US oil market fundamentally changed over the years due to shale oil revolution as well as the availability of alternative suppliers, analysts told Gulf News.

Tensions between Saudi Arabia and the US rose over the killing of Saudi journalist Jamal Khashoggi and Saudi Arabia hinted in a statement last week that if political actions are undertaken against it, it would respond with unspecified “greater action.”

But analysts point out that oil market is fundamentally different than it was during the 1973 Arab-led oil embargo in which Saudi Arabia and several regional allies squeezed supplies to the US and Europe in retaliation for their support for Israel.

In 1973, the oil market mostly worked upon long term contracts, however, currently, it mostly utilises the spot market (a buyer can easily find oil from another country), Justin Dargin, an international energy expert from Oxford University said. “Therefore, if Saudi Arabia imposed an oil embargo on the US, then the US would be able to source its oil from another country. Due to the shale oil production boom, the US currently produces more than half the oil it consumes.”

He however said the US is still dependent on Saudi oil because American refiners require medium and heavy grades of crude, while much of the US domestic production is quite light and does not meld well with the US Gulf Coast refineries.

The United States imports approximately 876,000 barrels of oil per day from Saudi Arabia, the number two supplier after Canada, constituting about 10 to 11 per cent of US oil imports.

“The real influence that Saudi Arabia has on the global market is its spare capacity. This is the underlying belief in the global market that Saudi Arabia can quickly increase or decrease oil production. And, this factor allows Saudi Arabia to have a disproportionate influence over global oil prices.”

“If Saudi Arabia were to drastically reduce oil production, it would undoubtedly cause an oil price shock, but at the same time it would spur a significant increase in investment to electric vehicles as well as into North American shale oil, both ultimately would injure the Saudi economy.”

The US also has the option of releasing oil from Strategic Petroleum Reserve, which holds three months of oil reserves to apply downward pressure on the oil price if Saudi Arabia reduced oil production.

“Overall, the most significant potential impact of any Saudi action in the global oil sector in response to the current situation would be extreme oil price fluctuation based on the market reacting to the fear premium. But the structural impact on the global oil market would be quite low. There would also be harm to the US-Saudi relationship that would take years to recover.”

In similar comments, Jeff Colgan, an expert on oil politics and Richard Holbrooke Associate Professor of Political Science and International and Public Affairs at Brown University said that the United States has little to fear from Saudi Arabia’s oil policies as it does not import much oil from the Kingdom.

“The United States also has a massive Strategic Petroleum Reserve. It holds three months’ worth of US imports from all countries and Saudi Arabia represents less than 10 per cent of those imports. If needed, the United States could calm market jitters by releasing oil from the reserve,” Colgan wrote in an article in The Washington Post last week.

Ehsan Khoman, Head of Mena Research and Strategy at MUFG Bank Ltd said Saudi Arabia’s 7.1 million barrels per day of oil exports — the largest in the world provides the country a leading role in balancing global energy markets.

“The Saudi leadership will be cognisant not to use oil as a tool for foreign policy given it has built a long-standing reputation as one of the world’s most reliable oil producers.”