In the past decade, investors betting against Saudi Arabia’s oil strategy have rarely come out on the losing side. On the contrary, the Kingdom’s predictably flawed attempts to cripple the U.S. shale sector through oil price wars—most notably between 2014-2016 and again in 2020—have yielded substantial profits for savvy traders. As OPEC and its OPEC+ partner Russia now weigh the option of increasing production, a pressing question looms over global oil markets: could Saudi Arabia be preparing to repeat a strategy that has failed twice before?
The 2014-2016 Oil Price War: A Costly Miscalculation
Saudi Arabia’s 2014-2016 price war was built on the assumption that U.S. shale oil producers required a breakeven price of $70 per barrel (West Texas Intermediate, or WTI). The plan was straightforward—flood the market with oil, drive prices down, and force U.S. producers out of business. Confident in this approach, Saudi officials even held private meetings in New York to share the strategy, asserting they were willing to tolerate Brent crude prices between $80–$90 per barrel—or lower—for up to two years.
Initially, the results appeared promising. By early 2015, the U.S. rig count fell sharply, and about one-third of 800 planned oil and gas projects worth $500 billion were postponed or canceled. Shale production dropped by nearly 50% over the year, and investments fell from $100 billion in 2014 to $60 billion.
However, the U.S. shale industry quickly adapted. Technological innovations such as longer lateral drilling, optimized fracking stages, improved well maintenance, and multi-pad drilling significantly reduced production costs. By the end of the war, many shale operators were profitable at $35 per barrel—half the original breakeven assumption.
For Saudi Arabia, the economic toll was severe. The country moved from a budget surplus to a record $98 billion deficit in 2015, burning through at least $250 billion of foreign reserves. OPEC as a whole lost an estimated $450 billion in revenue during the conflict, according to the International Energy Agency.
The 2020 War: A Political Interruption
The 2020 price war, driven by the same overproduction tactic, faltered under political pressure rather than market miscalculations. Then-President Donald Trump saw falling oil prices as a direct threat to the U.S. economy and his re-election prospects. Publicly and privately, he warned Saudi Arabia that its actions would not be tolerated.
Trump even suggested the U.S. might withdraw military support from the Kingdom, famously telling King Salman that he “would not last in power for two weeks” without it. On April 2, 2020, Trump made it clear to Crown Prince Mohammed bin Salman that unless production cuts were initiated, he would be unable to stop Congress from pursuing legislation to pull U.S. troops out of Saudi Arabia. Shortly afterward, oil production levels were reduced, effectively ending the price war.
Present Challenges: Economic Limits and Political Risks
Today, the dynamics have shifted yet again. According to the Dallas Fed Energy Survey, the breakeven price for new U.S. shale wells stands at approximately $65 per barrel—higher than in past years, though existing wells remain profitable at lower levels.
While Saudi Arabia’s oil lifting costs have risen modestly from $1–$2 to $3–$5 per barrel, the more significant figure is its fiscal breakeven point. The International Monetary Fund estimates that Saudi Arabia needs Brent crude at a minimum of $90.90 per barrel in 2025 to balance its budget.
Given these financial constraints, another prolonged dip in oil prices could be as damaging now as it was in previous years. The political landscape has also changed. With Donald Trump likely returning to the White House and Republicans controlling both chambers of Congress, Saudi Arabia faces a tougher negotiating environment should another price war trigger American retaliation.
A Shift Toward Cooperation
According to a senior U.S. energy official, Washington expects Riyadh to pursue a more measured strategy this time. “Oil prices at the lower end of recent historical averages suit the U.S. from an inflationary perspective, as long as they don’t go too low, and Washington has made this clear to the Saudis,” the official noted.
This sentiment reportedly featured prominently in talks during Trump’s May 13 visit to Saudi Arabia, where both nations signed a broad economic agreement. From a long-term perspective, the U.S. argues, cooperation will yield more stable financial and security outcomes for the Kingdom—even if it means tolerating suboptimal oil prices in the short term. Bridging budget gaps, the Saudis are expected to turn to capital markets for support without hesitation.
In summary, while the temptation to wield oil prices as a geopolitical weapon may persist, Saudi Arabia now faces tighter financial margins, diminished political leverage, and a more agile U.S. shale sector. A return to aggressive price wars appears increasingly untenable.
