Saudi Arabia’s Oil Strategy Is About Power

OPEC’s recent decision to start adding supply back to the market has baffled most analysts — though that hasn’t stopped them from offering explanations that are just as confusing as the move itself. On the surface, it seems illogical for the group to boost supply in what appears to be an already oversupplied market. Lacking imagination, the consensus explanation defaults to “market share,” as if the only other option is “price defense.”

But what if we started by assuming OPEC is smarter than the analysts? What if OPEC — and Saudi Arabia in particular — has adapted to a new world order while most observers are still using models that expired more than a decade ago? OPEC is no longer a simple price cartel. It is a geopolitical tool, and Saudi Arabia is using it to shape both markets and alliances.

The story begins years earlier. From 2011 through mid-2014, oil prices averaged $110 per barrel—the highest sustained levels in history—driven by strong demand, tight supply, geopolitical tensions, and financialization (Figure 1). This gave U.S. shale the opportunity it needed to scale output to world-class levels, threatening OPEC’s dominance. When shale oversupplied the market in late 2014, prices collapsed. Saudi Arabia refused to cut production, demanding that non-OPEC players, especially Russia, share the burden. None did. So Riyadh let prices fall and stay low through 2017, determined not to repeat the mistake of 1986 by cutting alone.

Saudi Arabia didn’t want this outcome, but chose to make the best of a bad situation by flooding the market to bankrupt shale producers.

In May 2017, Trump made Saudi Arabia his first foreign visit as president—the first U.S. president ever to do so. By then, OPEC had already cut production by over 1 million barrels per day in a tacit admission that the war on shale had failed. A month after meeting with the Saudi King and other Gulf leaders, Trump announced his “Energy Dominance” strategy: maximize U.S. production, use exports as geopolitical leverage, and reshape global alliances.

The benefits for Saudi Arabia were clear. Trump reaffirmed security guarantees, approved massive arms deals, withdrew from the Iran nuclear deal (JCPOA), and reimposed sanctions—all aligning with Saudi ambitions to isolate Iran. Trump also backed Mohammed bin Salman’s domestic power consolidation and foreign policy moves, including the blockade of Qatar and the Yemen war. He helped attract U.S. investment to support Saudi Vision 2030. These deals ensured continued access to dollar-based finance and U.S. capital markets—crucial for Aramco’s IPO and broader reforms.

Behind the scenes, even more important changes were unfolding. Gary Cohn joined the Trump White House as NEC Director on Inauguration Day. A week later, Rex Tillerson was confirmed as Secretary of State. Cohn, a veteran of Goldman Sachs and a key figure in creating the Intercontinental Exchange (ICE), understood energy markets, trading infrastructure, and financial strategy at the highest levels. Tillerson had just retired as the CEO of ExxonMobil, and was the first energy executive to ever have a cabinet position. Coincidence?

According to Chris Cook, Cohn and Tillerson restructured the U.S.-Saudi oil relationship. They made it possible for financial players—often backed by state oil companies—to pay oil producers upfront for future oil revenues. These hidden deals placed oil into storage but shifted ownership through opaque private contracts. Izabella Kaminska had called this “dark inventory.” The result: oil supply appeared tighter than it was because not all barrels were available for sale. This tightened supply perception created room for price increases through trading squeezes.

This is the so-called “unaccounted-for oil” tracked by the EIA. It’s not a fudge factor—it’s dark inventory. Unaccounted-for oil is the difference between produced crude and marketed crude, historically held in tank storage. That volume grew from 370 million barrels in early 2017 to 790 million by the end of Trump’s first term, hitting 1.1 billion barrels in mid-2024. It remains above 1 billion barrels today. (Figure 2.).

Pre-paid dark inventory deals were backed by T-bills, creating a swap: dollars for future oil. This tied oil value closer to the dollar. Financiers profited from T-bill yields and oil price moves. Producers got upfront cash without depressing spot prices. Prices stayed higher because supply looked tighter. Futures markets benefited from steeper backwardation. Even though the barrels were U.S. shale, Saudi Arabia benefited because artificial supply tightening supported global prices.

Now, in 2025, this same playbook is still in use. Dark inventory deals allow Saudi Arabia to pump more oil, secure cash flow, and maintain price stability by keeping the true supply picture hidden. It’s a sophisticated way to manage oil markets and geopolitical relationships without triggering a price collapse. Despite claims of oversupply, markets remain tight. As the UAE Energy Minister said this week: “The market needed those barrels.”

Pundits still cling to outdated views—arguing that things will change after driving season or when OPEC’s cuts fully unwind. They fail to understand how these markets now operate—or they do and are simply talking their book.

Look at Figure 3: WTI futures curves over the last three weeks. The entire curve “lifted” this week. Who is buying thinly-traded contracts six years down the curve, and why? It’s not hedge funds—there’s no money in that. It’s probably state-level actors engaged in prepaid oil deals and T-bill swaps through complex derivatives.

When Trump says he wants low oil prices, what he really wants is a weak dollar. The Cohn-Tillerson system effectively backed the dollar with WTI. That’s why the traditional inverse relationship between oil prices and dollar strength broke down years ago.

Like in 2017, aligning with the U.S. still brings Saudi Arabia tangible benefits. Recent U.S.-Israeli attacks on Iran’s nuclear sites weaken Riyadh’s chief rival, reducing risks to Saudi oil infrastructure and shipping. A weakened Iran and Houthis ease regional threats.

Reviving the Abraham Accords draws Israel deeper into a U.S.-aligned bloc Saudi Arabia hopes to lead. Bringing Syria into this structure further isolates Iran and positions Saudi Arabia as the region’s power broker. Less conflict means more opportunity for Saudi-led trade and investment, supporting Vision 2030 and boosting MBS’s status as a transformative Arab leader.

Why do analysts struggle to explain today’s oil market? The era when supply, demand, and price cycles told the whole story ended long ago. Oil is the world’s master resource, and OPEC holds more of it than anyone else. Saudi Arabia and the UAE control about 90% of OPEC’s spare capacity and use it not just for market management, but as a key tool of geopolitics.

Oil is no longer just a commodity—it’s embedded in financial systems and geopolitical alignments. Dark inventory, prepaid contracts, and futures positioning are instruments of statecraft.

Saudi Arabia isn’t just chasing market share or simply defending price. It’s securing geopolitical leverage, funding its economic transition, and managing the energy-dollar nexus. Those who don’t see this aren’t looking at how the system really works today.