THE BIG PAYBACK49The change was breathtaking. Saudi revenues jumped forty- fold between
1965 and 1975, from $655 million to $26.7 billion. For the entire Gulf
region (including Iran and Iraq), the $71.6 billion in government reve-
nues reaped in 1975 were thirty times the $2.3 billion earned in 1965.^19
- Oil- exporting countries also acquired geopolitical power commen-
surate with their influence over the global economy. Such power had
heretofore eluded suppliers of primary products. Not long after the
embargo, Saudi Arabia emerged as the world’s energy broker of last resort,
a role around which the kingdom built a long- term strategic alliance with
the United States. - High oil prices also incentivized importing countries to reduce
exposure to oil, particularly from the Middle East. Big investments in
exploration, diversification, and conservation grew out of the embargo.
By 1975, Saudi Arabia had emerged as the world’s most important
player in oil markets and was on its way to claiming the role of swing
producer, building up its oil- production capacity to the point of being
able to produce more oil than required to meet its export contracts. The
kingdom’s policy makers learned to use that spare production capacity
to augment Riyadh’s new geopolitical power. The kingdom could quickly
move to increase production, which helped smooth markets and offset
outages in times of crisis, and it could also slash production and send
importers into a panic.
The Arab oil embargo of October 1973 had its origins in geopolitics,
but its main effects were economic. For the conspirators, the events
brought a paroxysm of instant wealth, followed by a much larger role in
the global economy and in geostrategic affairs. Today, state- owned NOCs
control some 90 percent of global oil and gas reserves and 75 percent of
global production. IOCs have since been relegated to subordinate roles
in less attractive locations. The masterful timing of the nationalizations
allowed producer countries to capture the rents generated by the first
modern spike in oil prices, as well as those that would follow. The oil
shock marked a crucial turning point for the region. The events of that
momentous period laid the groundwork for the era of extreme rentier-
ism that would unfold in the newly independent Middle East petrostates.