CONCLUSION: THE CLIMATE HEDGE169The kingdom also plans strategic investments that maximize the effi-
ciency of oil’s main technological partner, the internal combustion
engine. If oil- fueled transportation remains cost competitive with
electric vehicles, it prolongs the lifespan of gasoline. Over the long run,
hybrids like the Toyota Prius, with its fuel- efficient internal combustion
engine, look more like oil’s salvation than a threat to demand. Vehicles
that use no oil at all, like the plug- in Tesla, are where the risk lies. Fur-
ther out, if threats to oil gain ground, producers might decide to step up
production. With 260 billion barrels of proven crude oil reserves still
underground, any reduction in global oil demand is a scary proposition
in Saudi Arabia.^17 An increase in output could allow them to avoid being
stuck with stranded reserves. The more you pump now, the less you
abandon later.
Low- cost producers like those in the Gulf, where a barrel of oil costs
around $10 to produce, might see an advantage in shortening the time-
frame for converting underground reserves into aboveground assets.^18
This would, all else remaining constant, increase their market shares
while reducing global oil prices and stimulating demand. For Riyadh,
the cost advantages of “easy oil” could transfer the risk of stranded assets
to producers needing high oil prices— say, around $70— to break even.
High- cost producers include those in the Canadian oil sands, the Arctic,
or Venezuela’s Orinoco Belt.
If this phenomenon were caused by environmental policy such as cli-
mate action, it would mean that the dreaded “green paradox” had come
to fruition. The so- called green paradox proclaims that environmental
regulations aimed at discouraging fossil fuel could end up enhancing the
fuels’ attractiveness. If not designed properly, climate action could actu-
ally incentivize oil production and push down prices.^19 If such a sce-
nario were to play out, the resulting oil glut might even delay the onset
of peak demand, prolonging oil’s dominance. Low prices might push
emerging economies to increase their dependence on oil by making
investments that “lock in” higher levels of long- term demand.^20
The climate threat to the Gulf monarchies is moderated by two cave-
ats. First, of the three fossil fuels— oil, gas, and coal— oil faces the small-
est threat from climate action. Why? Because oil holds a near- monopoly