Saudi Arabia has some of the world’s lowest oil extraction costs. American shale faces a different test, while Iraq and Angola show why surviving as an oil producer does not guarantee secure public finances.

The reader’s comment that made me look again

A reader responding to my recent article about electric vehicles and oil-producing countries made a prediction. As demand weakens, he believes the cheapest oil producers will drive their more expensive competitors out of business.

I could see his reasoning. Saudi Arabia has an advantage over many competitors because its vast conventional oil fields allow relatively inexpensive extraction.

But something about that argument bothered me.

An oil company needs enough money to cover its costs and reward investors. A government needs enough revenue to run an entire country.

Saudi Arabia could win the first contest and struggle with the second. Even in today’s disrupted oil market, that distinction deserves attention.

Saudi Arabia’s $3.51 oil figure needs an explanation

According to Saudi Aramco’s 2025 annual report, average upstream lifting costs were $3.51 per barrel of oil equivalent. Average upstream capital expenditure was $8 per barrel of oil equivalent.

Those are low figures, but neither represents the complete cost of producing and delivering a barrel of crude. Lifting costs cover particular operating expenses. Upstream capital spending is measured separately and should not simply be added to calculate a universal breakeven price.

A barrel of oil equivalent also includes hydrocarbon production other than crude oil. It is not identical to the cost of extracting one barrel of crude.

Aramco’s fields benefit from large reservoirs and established infrastructure. That is a genuine competitive strength, but cheap extraction is only part of the Saudi story.

The Saudi government needs more than cheap extraction

The International Monetary Fund’s May 2025 regional outlook projected a Saudi fiscal breakeven oil price of approximately $86.60 per barrel for 2026. That is a dated estimate, not the current cost of producing oil, and later estimates have differed.

A fiscal breakeven price describes the oil price needed to balance a government budget under particular assumptions about production and spending. It changes when those assumptions change.

In its July 2026 assessment, the IMF projected a Saudi fiscal deficit of 3.7% of GDP for the year.

Saudi Arabia must finance public services and infrastructure while investing heavily in Vision 2030. The kingdom has substantial financial assets and borrowing capacity, and non-oil business activity has expanded.

Yet spending on a hotel or factory does not establish that it will eventually generate enough lasting revenue to support the budget. I would judge diversification by the income its new businesses can sustain, not the size of the projects being built.

Could Saudi Arabia survive $55 oil?

Imagine oil trading around $55 or $60 per barrel for several years. This is a hypothetical stress test, not a near-term forecast.

The IEA’s November 2026 Oil Market Report described a very different situation: North Sea Dated crude had fallen to roughly $93 after reaching about $136 in early October amid war-related supply disruption. The EIA’s November outlook expected elevated Brent prices for the remainder of the year.

War can make petroleum scarce and expensive even while technology slowly reduces demand for road fuels. One development does not cancel the other.

At sustained $55 oil, Saudi Arabia might remain competitive in many crude markets. But its government could face pressure to borrow more, raise other revenue or slow certain projects.

The oil industry might still be profitable. The spending commitments of the state are a different matter.

Saudi Arabia has another advantage: production flexibility

Aramco reported maximum sustainable crude production capacity of 12 million barrels per day at the end of 2025. Capacity gives the kingdom flexibility, although actual production depends on operating conditions and policy decisions.

Producing more is not always the best way to earn more. Consider two hypothetical cases: selling eight million barrels a day for $80 yields $640 million in gross daily sales. Ten million at $55 yields only $550 million.

These figures do not represent actual Saudi output or government receipts. They show why producers sometimes choose to restrict supply rather than sell the maximum possible volume.

The question of export infrastructure matters too. I previously examined regional oil-route risks in my earlier examination of Saudi oil production cuts. The country’s physical ability to deliver crude is another part of its market position.

American shale faces a different financial test

The United States remains the world’s largest crude oil producer. The EIA’s November 2026 outlook forecast average output of around 13.9 million barrels a day for 2026.

US shale producers differ widely in the quality of their drilling locations and in their financial strength. Some existing wells remain economical at prices that discourage investment in new ones.

In the Federal Reserve Bank of Dallas March 2026 energy survey, respondents in the Permian Midland Basin reported an average WTI oil price of $69 needed to profitably drill a new well. The Delaware Basin average was $63.

These are executives’ estimates for new drilling, not operating costs for existing wells. They also use WTI pricing and cannot be directly compared with Saudi national budget breakevens.

At a sustained price of $55, some shale companies could keep existing wells operating while postponing replacement drilling. As old wells decline, production could eventually weaken.

Others may still drill because their costs are lower. It would be misleading to treat every US producer as equally vulnerable.

The American economy has many sources of income. Its federal budget does not depend on crude oil exports the way some oil-producing states depend on petroleum revenue.

Iraq cannot respond like an oil company

The IMF’s 2025 assessment of Iraq reported a fiscal breakeven oil price rising from approximately $54 per barrel in 2020 to around $84 in 2024. Those are historical estimates, not a current market quotation.

The IMF also projected that wages and pensions would account for 24.5% of Iraqi GDP in 2026.

A company can delay a drilling project when prices fall. A government cannot abruptly stop salaries and pensions without consequences for families and the businesses that depend on their spending.

Iraq needs stronger non-oil employment and dependable electricity. Improving its institutions is as important as attracting investment.

Low-cost reserves can preserve Iraq’s place in the petroleum market. They cannot, on their own, make its public finances resilient.

Angola shows the danger for a smaller producer

Angola offers a different example. Its mature offshore fields require investment to limit production decline, but new discoveries have not fully replaced what older fields have lost.

According to IMF reporting on Angola in 2026, oil production fell from roughly 1.7 million barrels a day in 2015 to about 1.05 million in 2025.

The IMF reported that Angola’s fiscal deficit reached 4.1% of GDP in 2025 and that its oil sector contracted by an estimated 5.2%. These developments have implications for public spending and the investment needed to maintain future output.

Angola faces a problem that Saudi Arabia does not face to the same extent. Maintaining production from ageing fields requires new capital, and investors may hesitate if they expect weaker long-term oil prices.

The word smaller should not automatically mean high-cost or vulnerable. But a mature field and constrained public finances make an uncomfortable combination.

Can Saudi Arabia force expensive producers out?

The idea of flooding the market with cheap oil sounds straightforward. If prices fall far enough, producers with expensive projects will stop drilling.

But Saudi Arabia would lose revenue too. Its government cannot ignore the cost of a price war.

In March 2020, a confrontation between Saudi Arabia and Russia coincided with the collapse of oil demand during the early pandemic. Prices plunged, putting heavy pressure on producers across the industry.

Cutting supply can support prices, but major producers also want to preserve their customers. OPEC and its partners have repeatedly had to balance those two objectives.

If producers stop investing for too long, older fields continue to decline. Supply may later become tight, lifting prices and making some postponed projects attractive again.

I would not assume that a shrinking oil market will eliminate high-cost producers in a neat sequence.

Electric vehicles change the longer-term calculation

The IEA’s Global EV Outlook 2026 estimated that EVs displaced around 1.7 million barrels of daily oil consumption in 2025. Its Current Policies Scenario suggests displacement could reach about five million barrels a day by 2030.

These are estimates of oil consumption avoided by EVs, not direct forecasts of a reduction of the same size in total global oil demand. Other petroleum uses may continue growing.

The IEA’s November 2026 forecast of falling oil demand during the year was shaped heavily by war disruption and high prices. That immediate shock should not be confused with a gradual transition toward electric vehicles.

Over decades, sustained growth in electric transport could reduce the size of one of oil’s major markets. Producers could then compete harder for remaining customers.

Yet investment decisions and natural field decline will also shape supply. Oil prices could rise during shortages even in a market with slower long-term demand growth.

The UAE complicates the picture

The United Arab Emirates shows why oil exporters cannot be judged by extraction costs alone. The country has expanded activity in trade and tourism, although individual emirates have very different economic structures.

Abu Dhabi’s petroleum wealth and Dubai’s commercial economy are not interchangeable. Earlier IMF fiscal estimates suggested the UAE required a lower oil price to balance its budget than Saudi Arabia, but such figures change with production and spending assumptions.

A broader revenue base can give governments more room to manage weak oil prices. The important question is not whether an exporter gives up petroleum, but how much public spending remains tied to its earnings.

Who survives?

Saudi Arabia is well placed to remain a major oil producer if the market eventually contracts. Its low-cost reservoirs and production flexibility are difficult advantages to replicate.

Some US shale companies may struggle to justify new drilling when prices are low. Others could keep investing, and the wider American economy is not built around oil export income.

Iraq faces large public spending obligations. Angola must secure investment in ageing fields while handling pressure on its finances.

None has a guaranteed future. Supply disruptions could keep prices high, while slower demand growth could bring periods of greater competition.

The reader who predicted that cheap producers would outlast expensive rivals identified a real pressure in the market. But consider what happens if Saudi Arabia survives that contest while petroleum earnings no longer cover the spending its government has planned.

Aramco’s fields might continue delivering profitable oil. Riyadh could still need to borrow more or slow investment.

The kingdom might win the oil competition without winning the financial argument.

Related reading on munaeem.org

• Why Saudi Arabia keeps cutting oil production
• Saudi Arabia’s $1 trillion plan: Is it possible?
• How petrol and electricity costs reach Pakistani households