... because once a producer with the capacity of Saudi Arabia undercuts the cartel, the rest have no choice but to cut prices too or sell no oil at all. “Moderate” Sunni Muslim oil producer states (Iran, whom much of the world fears is trying to produce a clandestine nuclear bomb, is radical Shiite, the rival Islamic sect to Sunni) understand the situation and aren’t complaining.
That’s not really true. If the rest of OPEC dropped production by 20%, Saudi probably could not make it up, at least not in the short or medium term. Saudi is pretty close to “maxed out” production, and has been for a while, making only modest efforts to increase production. Additionally, internal consumption is rising rapidly, cutting into potential export capacity. Note that Saudi Arabia is roughly 31% of OPEC production. (That figure may actually be lower for 2014, as Iraq’s production is growing.)
In order of importance, I believe Saudi Arabia’s goals are:
1) Choke Iran, and to a lesser degree, Iran’s pal, Russia.
2) Maintain present market share.
3) Restrain growth of U.S. production by forcing out some marginal U.S. producers.
4) Create their own value added hydrocarbons industry for the long term (ie., products like plastics, etc.) It makes little sense to halve the time their reserves would last, if such industry is a goal.
Good data here: http://www.eia.gov/countries/country-data.cfm?fips=sa