The simmering cauldron among the oil-producing countries is beginning to boil as non-states continue to agitate the remaining sovereign governments and inspire their respective state's restive minority populations and other anti-governrnent elements. This leads to the interesting possibility that if this level of intensity continues, "something has to give." Although the big open secret, Venezuela is already teetering on the brink of collapse, Saudi Arabia's leadership is not as secure as many would want to believe.
In an unthinkable yet perhaps increasingly plausible scenario, what would happen if the governments of Venezuela and Saudi Arabia fell in short order? The market hasn't even properly priced in the possibility of a collapse in Venezuela with an uncertain future oil production and export. The new, young and inexperienced government in Saudi Arabia is justifiably reacting to quickly moving, unprecedented economic and geopolitical dynamics. These new bold policies are not to the liking of more traditional religious and government elements who may decide that these "Young Turks" must be replaced.
The sudden removal of upwards 12-13 million bbls/day (Venezuela 2.3 million bbls/day, Saudi Arabia 10 million bbls/day) from world markets would result in a hyper-price spike of oil well into triple-digits. World industries would suddenly be operating on fumes in short order. Even a modest reduction would roil world markets. Like the Iranian Revolution of 1979, few saw that coming and fewer still believed the follow-up devastation of the economic aftermath. Saudi politics are even more opaque than Iran's in 1979 so ascertaining which group(s) will secure power discerning their relationship with western countries is a huge unknown. A hostile new Saudi leadership could very well hold the world hostage economically. During the 1973 embargo, OPEC reigned supreme and Saudi Arabia had a strong, unquestioned leadership that unabashedly used oil as a petro-weapon. You can print money like most countries to "paper over" debt obligations but you can't print oil.
Though Saudi Arabia needs oil export revenue, their production may be curtained drastically enough just to serve their needs internally and be quite satisfied with a new role in the marketplace. Few countries, even the US, are capable, even collectively, of making up such a production shortfall. Although US shale-oil firms could ramp up quickly, the US is not independent of foreign oil and still imports a considerable amount. The current domestic oversupply will be drawn down rapidly within weeks leaving a wafer-thin margin between flat-out production and demand. Exacerbating this dystopian scenario is that it could take place during a US election year at a time when the world looks to the US for leadership. Should Hillary Clinton become president, she has the deep international relationships to resolve, or at least mitigate this crisis, while Donald Trump may end up pouring gasoline on a raging inferno.
Disclosure: I am/we are long VDE.