Peak Oil is You
Donate Bitcoins ;-) or Paypal :-)
Page added on December 14, 2014
Saudi Arabia’s oil war against Iran and Russia
This week, oil fell through the price floor of $60 a barrel and gas at my local filling station was $2.26 a gallon.
That’s great news for commuters and almost every business, but wonderfully bad news for our ugliest enemies.
If oil prices remain low through next year, the effect on rogue governments, from the Russian Federation to Venezuela, will go from damaging to devastating.
But Western economies (and China’s) stand to benefit, with cheap oil possibly tickling Europe’s snoozing markets awake. Even most underdeveloped states will get a welcome break.
This price plunge has been driven by Saudi Arabia, OPEC’s dominant power. While it’s true that part of Riyadh’s actions respond to the energy renaissance in North America, the greater motivation is breaking Iran’s will.
The Saudis believe they can no longer rely on the US to contain Tehran’s imminent nuclear threat, so they’re out to do what our lukewarm sanctions couldn’t.
There’s no love lost between the Saudis and the Russians, either. The Saudis want the Assad regime in Syria to go. Moscow props it up.
The Saudis aren’t doing any of this to help us, but it helps us just the same. Now the key issue is: How long will prices stay low?
Markets can be unpredictable, but an emerging global glut of oil, decreasing demand and greater efficiencies suggest that petroleum products should remain relatively cheap — with fluctuations — for the next few years.
That’s good news for democracies and free markets, but a nightmare for dictators everywhere.
Here are the key losers — and winners.
The Targets
Iran
Tehran had learned to live with Western sanctions. But oil has been its lifeline. And to balance the books, oil has to sell between $135 and $140 dollars per barrel. Good luck with that, Supreme Leader!
With the barrel price at barely 40 percent of Iran’s requirement, the economy’s going to hemorrhage. Iran’s leaders will be under far greater pressure to compromise on the nuclear weapons — unless we keep easing sanctions for nothing in return. This is the last chance for negotiations to bring results.
The fascinating angle here is that Saudi Arabia’s doing more for Israel’s security than the Obama administration’s been willing to do. Common enemies generate unexpected — if unadmitted — alliances.
Russia
The price collapse could not have come at a worse time for Bad Vlad Putin. The Russian president needs an oil price around $100 a barrel to prop up what’s become a wartime economy.
Oil and gas provide up to a third of budget revenue and compose two-thirds of exports.
Sanctions imposed over Putin’s aggression have gnawed at Russia’s economy, but this price drop bites deep: The ruble has crashed, Russian bonds are pathetic, and foreign reserves are bleeding.
While Russians will put up with harder times than Westerners will, Putin’s made extravagant commitments (bet he’d like to have back the $50 billion he squandered on corrupt Olympic construction).
The world’s fave bare-chested bully had embarked on a massive arms buildup, with a hi-tech $5 billion command center just unveiled. But Putin’s visions of military resurgence are becoming unaffordable
He also made election promises to improve Russia’s wretched health-care system. Instead, he’s firing health-care workers and shuttering hospitals.
He promised higher living standards, but now the average Ivan’s feeling squeezed. And Putin faces enormous costs in Crimea and eastern Ukraine, two booby-prize welfare states, with the latter shot to ruins.
Putin’s popularity remains high. For now. The gravest worry is that, with his back to the wall, he’ll play the Mother Russia card and attack again.
Iraq
Iraq has nothing to offer the world but oil. And Baghdad needs to fund a survival struggle against Islamic State militants.
The Saudis don’t like the Islamic State caliphate claims, but they have no sympathy with Baghdad’s Shia-dominated, Iran-aligned government, either. Don’t expect price rises for Iraq’s sake.
The problem is that we’ll end up paying more of the battle bill for Baghdad’s pretense (and our State Department’s fetish) that Iraq can be kept intact. The conquests made by Islamic State terrorists aren’t the cause of Iraq’s troubles, just one more symptom.
The Winners
USA, USA!
Although some energy players will suffer from lower prices and we’ll see a wave of corporate consolidation, the oil-price drop’s great news for American consumers, businesses and even, in the longer term, our military.
An economy that had begun to recover — despite Washington — is getting another vitamin shot, while working-family budgets get a break.
The Saudi strategy also aims to hurt our burgeoning energy industry, such as the shale oil extraction in North Dakota. But it won’t derail it. And the overall effect on our economy will be positive.
Perhaps the greatest benefit, though, is that the oil-price plummet is doing what the Obama administration lacked the guts to do: It’s smacking down our enemies.
Former Secretary of State Hillary Clinton didn’t reset relations with Moscow, but bargain-basement oil prices might. Iran may have to give up its dreams of nuclear hegemony in the Middle East.
And with the exception of China, almost every major state that benefits from lower oil prices, from Japan to India, is either an ally or neutral.
Pursuing its own interests, Saudi Arabia may have rescued our failed foreign policy.
China
The world’s second-largest energy consumer (after the USA) and dirt-poor in domestic oil and gas reserves, China had been on track to spend half a trillion dollars a year on oil-and-gas imports.
If petroleum-product prices remain low, that figure could be cut in half. Cheaper oil and gas also offer China another path to reduce its massive pollution, much of which comes from low-quality, internally produced coal. China’s fantastic growth rates had been slipping, but lower oil prices will help soften any fall.
India
The drop in energy-import costs comes as a timely blessing. Once-robust growth rates have fallen by 60 percent and India must spend massively to import three-fourths of the oil it consumes.
Lower energy costs should help New Delhi sustain GDP growth, if at a less-torrid pace than in the past decade. And the drop in prices makes the gas pipeline Russia wants to foist on the region less attractive.
Mexico
A decade ago, such a price collapse would have devastated Mexico’s then-oil-dependent economy. But diversification, deregulation and smart contracting on options markets, should see Mexico’s economy through at least the next year without a major impact from lower oil prices.
If, however, oil prices remain low for years to come, Mexico’s economy will suffer. A full third of government revenue comes from petroleum sales and, even now, oil accounts for 15 percent of exports (behind assembled goods).
A sharp downturn in Mexico’s economy while our own economy booms guarantees more illegal immigration.
Canada
“Woe, Canada?” Or just, “Whoa, Canada!” Sharply lower oil prices make the exploitation of Canada’s tar-sands deposits less viable — a grave disappointment to budget wonks in Ottawa — but Canada’s diversified and robust economy should weather the sectoral crisis: One industry’s loss is the gain of several others.
Some localities will be hit hard (just as in the “lower 48”), but North America still looks a great deal brighter economically than leftists around the world have warned for a century.
Collateral Damage
Venezuela
Even before the oil-price crash, Venezuela’s economy was literally wiped out — with no toilet paper on sale. There are shortages of everything from flour and milk to diapers. Once the richest South American country on a per capita basis, a decade and a half of socialism has wrecked Venezuela’s oil industry and left its economy gasping.
Capital flight, party cronyism, crippling price controls and the staggering corruption that always marks leftist utopias have left the state with a single functioning institution — the secret police (trained and bolstered by Cubans).
Heir to the late President Hugo Chavez’s “Chavismo” (the real voodoo economics), hapless President Nicolas Maduro’s as incompetent as his mentor, but lacks his charisma. Naturally, he blames everything on the Yanquis.
If oil prices stay down, the government in Caracas will go down. But it won’t be pretty. And the economy will take decades to rebuild.
Brazil
With its big, diversified economy, Brazil should be able to weather the loss of oil revenue. But the current socialist government’s hooked on energy income to shore up creaking social programs and cushion the economy from the effects of massive corruption.
And the country’s energy industry is a mess. Brazil will survive, but not thrive, while oil prices stay low.
Nigeria
With reform efforts crumbling and Boko Haram rampaging in the north, Nigeria now faces a looming budget crisis. In Africa’s most-populous country, three-fourths of government revenue, a full third of the economy and 90 percent of exports flow from oil.
The price collapse is terrible news for a country that never made sense, with its desolate Muslim north and oil-endowed Christian south. If there’s one nominal ally we should worry about with oil prices so low, it’s Nigeria.
18 Comments on "Saudi Arabia’s oil war against Iran and Russia"
Makati1 on Sun, 14th Dec 2014 7:19 am
Boy! The bullshit is deep in this one! A few more months of this “goodness” for America should collapse it’s economy and take down the USD financial system. We can only hope.
Putin is laughing all the way to the East where 3+ billion people have signed up to use rubles in trade and bypass the USD. Putin does not need the dying EU to sell his energy to. Nor does he fear the US military. The Us is now a toothless junkyard dog. Lots of bark but no bite. Still fighting 3rd world goat herders in the ME after 15 years, and losing.
Yes, 2015 is going to be interesting. I just hope it does not end radioactively.
Davy on Sun, 14th Dec 2014 8:01 am
I would say this article is very similar to your propaganda Mak, Facts are used to create a lie, distortions, and manipulation of the truth. The article covers well the failings of your super heroes. You just chose to reject these facts in a balanced response.
The article is more corn porn from an establishment that is disintegrating. This disintegration will be paradoxically started from the macroeconomic disturbances from the oil price shock they are crowing as an economic stimulus. A small shock in an unstable system is all it takes. I need only point to the Lehman’s shock. The problem is counterparty risk exposure. On the global scale it is exposure to TBTF countries in the interconnectedness of the global economy. Oil exporters are too big too fail or even get sick considering the importance of oil to everything.
The financial system will likely not survive this oil price shock in the configuration we see today. There will be no 2008 style rescue. The response this time around will likely lead immediately or eventually to a break in confidence and hyperinflation. This a broad time frame but it represents the unpredictability of human nature and its liquidity. A complete loss of confidence is all that is left at this point. Hyperinflation is a complete loss of faith in the underlying basis for the global economy and that is debt and fiat currency.
JuanP on Sun, 14th Dec 2014 8:15 am
I couldn’t read this crap. Classical Western BS and propaganda, very crude, ignorant, and impossible to believe.
dissident on Sun, 14th Dec 2014 8:17 am
This isn’t the 1980s. Saudi Arabia does not have millions of barrels per day of spare production capacity. All it has is at most 1 million barrels of heavy sour grade crude.
There is not going to be any repeat of the 1980s. We will not see oil hitting $13 per barrel again. Wait for the biggest oil market price rebound ever in 2015. All those stalled non-conventional oil plays in the USA are central to the global supply picture. They were responsible for the increase in global production over the last four years. Everything else is in decline or stalled.
dashster on Sun, 14th Dec 2014 8:18 am
The current oil prices are still – adjusted for inflation – historically high. The IEA did not forecast prices this high in their 2005 25 year forecast – at any time.
It is sad they way everyone, including countries, spends everything they have. These countries should all be sitting pretty on unexpected wealth able to handle a price higher than they were expecting 10 years ago.
Dave on Sun, 14th Dec 2014 8:26 am
Yes indeed. The US and Canada are right in the crosshairs of this action, if we take the BS out of it. The reason one can even get away with this hogwash is the delay time between the collapsing oil price and falling production. Nonetheless, reality with catch up.
shortonoil on Sun, 14th Dec 2014 8:53 am
That’s great news for commuters and almost every business, but wonderfully bad news for our ugliest enemies.
According to several analysts 93% of the employment gains in the US since 2008 has resulted from the expansion of the shale industry. 90% of its GDP growth has come about for the same reasons. The shale industry is now indebted to the tune of $800 billion in highly leveraged bonds, and loans. $60/barrel oil will undoubtedly kill that industry. The present oil price situation is a disaster for the US economy. Those evil Russians, and Iranians will be totally distroyed right after the US has had most of its essential appendages amputated.
This price plunge has been driven by Saudi Arabia, OPEC’s dominant power.
Complete total trash! The amount of oil that may be over supplying the market now amounts to no more than 1.5 to 2.0 mb/d. Historically this situation has arisen over and over again, and there has never been a 40% market correction as a result. There appears to be two factors that have contributed to the present price collapse: the entropic decay of the petroleum production system, and the huge mal-investment created by the central banks present monetary policies.
Expect the present situation to worsen as oil prices continues their long term downward descent:
http://www.thehillsgroup.org/depletion2_022.htm
and central banks continue to kill any rational response from the markets in their attempt to save the now insolvent banking system.
http://www.thehillsgroup.org/
rockman on Sun, 14th Dec 2014 9:56 am
“This price plunge has been driven by Saudi Arabia, OPEC’s dominant power.
Complete total trash! The amount of oil that may be over supplying the market now amounts to no more than 1.5 to 2.0 mb/d.”
While I agree somewhat with shorty’s view I’m again baffled by the concept of “over supplying” the market. Does that mean the exporters are offering more oil to the market place then consumers can buy? Well, that has always been the case since I started in the biz 40 years ago: there has always been more oil available to export then the consumers can afford to buy: no different then when oil fell under $20/bbl in 1998 or $140+/bbl in 2008. Or today at $65/bbl.
At the moment there’s doesn’t appear to be an “over supply” of $65/bbl oil: every bbl offered for sale is being purchased. OTOH currently there’s a huge over supply of $100/bbl: not a single bbl of that oil is being sold today.
As far as the KSA driving the price of oil down by suddenly “flooding” the market place with a “glut” of oil… they haven’t: according to the EIA the KSA was exporting 9.2 million bopd in 2005 and today is exporting 8.7 million bopd. But they did drop exports in late 2008 to 7.5 million bopd. Which was the result of a tremendous over supply of $140+/bbl oil…consumers stopped buying that oil.
So the KSA didn’t cause the drop in oil prices by pushing a lot more oil into the market place because, according to the EIA, because they didn’t. OTOH US companies did push about an additional 5 million bopd into the market place in recent years. And let’s not forget Iraq has added a bit in the last few years also. Of course, one could argue that the KSA might have prevented the price collapse by reducing their exports…by 50%: that would have compensated for the new production US shale players brought to the market place. But, then again, any of the other oil exporters, such as Russia, Norway, Mexico, Venezuela, etc could have done likewise. So why does the KSA alone get blamed? IOW why would anyone expect the KSA to reduce their oil export revenue by 50% so Russia, Iran, US shale players et al could continue receiving the same income?
If any country should be “blamed” for pushing more into the market place and driving prices down it should be the US: it has added much more oil to the market place then any other country…including the KSA.
MKohnen on Sun, 14th Dec 2014 12:57 pm
The MSM and TPTB will wave flags and chortle about the “fracking miracle” and how it has saved the west. But when things go south, they immediately claim that the oil industry really isn’t that important, and its demise won’t mean much to the economic health of the country.
We all know what’s next, don’t we? A huge number of companies “suddenly” going bankrupt, taking down banks with them. And then the MSM and TPTB will be shouting at the top of their lungs, “No one saw this coming! It was impossible to predict!”
Speculawyer on Sun, 14th Dec 2014 1:13 pm
Rock, you are right that the KSA has done nothing affirmatively. They are just producing business as usual and letting the market it sort it out. But what I think they are pointing to is the fact that as an OPEC member and exporter, they voted against production cuts and have not cut their production. Those are things they could have done but did not.
With so many of the earlier comments . . . I don’t understand paranoid conspiracy theories and doomerism. You just shake your head and say this is all wrong . . . but you provide no better alternative theories. And your endless previous calls of doom have not come true. I think it is more about your psychology than what the data shows. High oil prices = doom! Low oil prices = doom! Sun rises = doom!
bobinget on Sun, 14th Dec 2014 1:34 pm
Thanks, Rockman for your analysis.
I fear Rock like most Americans, is sick and tired of hearing about daily atrocities. After-all the US has been ‘at war’ say it, it’s true. At war in the Mideast
longer then in Europe 1942 till 1945. Longer then
Korea 1950 to 1953. Vietnam 1969–1973
Afghanistan 2001 to the present. 14 years and counting. No wonder Rock and the majority of Americans are sick of thinking about our current
revisiting of Iraq’s killing fields or oil fields, your pick.
Iran and Saudi Arabia are deeply engaged in
a force-filled four year power struggle in Syria.
That’s fact. Two non Muslim OPEC members Venezuela and Ecuador, it’s safe to say, are aligned
with Russia and China for obvious reasons.
The article above (note the slam on Socialism, a more clever editor would strike that reference, it being a dead bias giveaway) Venezuela is in more trouble then toilet paper shortages. Venezuela could easily default unless China rides up on their white dragons and buy up Venezuela’s oil future exports.
Sanctions worked so well against Iran the US is doing the same Venezuela. Additional cold war sanctions on US fourth largest crude supplier will cinch deals with China and Russia.
News-flash: in 2015 most of Venezuela’s oil will be headed to Asia. The Panama Canal widening project when complete will finish off any US Venezuelan Imports. We should just call that particular blunder ‘unintended consequences’. Depriving Caribbean and Central American nations of discounted Ven oil
will also foment additional, insoluble problems.
On Africa, are three OPEC members, Nigeria, Algeria, and (unmentioned) Libya. If the situation in Nigeria is untenable, Libya’s is a complete basket case.
Libya is, while you are reading, is being occupied
by insurgent, AKA ‘terrorist’ groups aligned with
ISIL. Once in place, like a rat plague, it will be impossible to rest all that light oil from IS grips without paying ransom prices.
Whenever it appears Islamic political forces will win any election in Algeria, they simply lock them up and throw away the keys. What possibly could go wrong there?
Repercussions, long term for the US and Europe
as a result of this scandalous con job to make oil ‘affordable’ will backfire in the real sense of that word.
Well, you say, we can always get needed oil from
Canada. If you believe Canadian ‘loyalty ‘
extends to depriving Eastern Canada of oil, think again.
Davy on Sun, 14th Dec 2014 2:38 pm
MK, I am wondering if the latest CRominbus bill that got passed because the establishment knows the ship is sinking. At least they understand it is going to get bad again and there will need to be another bailout. This is why there is the changes to the derivatives language of the Dodd Franks bill to allow DC to legally bail out the banks again. This is another hijacking of America by the elites. They have created another huge mess that will end badly. We have been saying the same for many months now and it is finally being realized. It is apparent DC and NY are aware now also.
The following are bill details:
http://www.zerohedge.com/news/2014-12-14/senate-passes-cromnibus-here-who-voted-no-and-what-it-actually-contains
Following the passage of the Crominbus on Thursday night in a last minute “nailbiter” when the Federal spending bill got just one vote more than the required majority, it was off to the Senate. And late last night, proving that the Senate can work on weekends when a piece of Citigroup-penned legislation is on the table, in a 56-40 vote (21 democrats, 18 republicans, 1 independent voting No), the Senate joined the House in voting itself $1.1 trillion for the next 9 months, with the bill now heading for the final signature: Obama’s. There is some argument whether the executive will join the legislative in confirming the US government is now (and always has been) merely a pupet of Wall Street, although we expect all it will take Jamie Dimon is just one more phone call of “encouragement” to Obama to make sure Wall Street’s will is done in the White House.
The bill includes language repealing part of the Dodd-Frank Wall Street reform law that will allow banks covered by the Federal Deposit Insurance Corporation to directly engage in derivatives trading. This set off the biggest political storm for the legislation, as Sen. Elizabeth Warren (D-Mass.) led a liberal insurrection against the White House, which decided not to fight Republicans over the measure. Wall Street lobbied for the change, and the bill will be sent to Obama with the language in it.
The bill also raises the limits on what people can give to political committees each year, greatly increasing the money wealthy people can donate. The provision would allow a wealthy donor to contribute a total of more than $1.55 million to a national party.
Rodster on Sun, 14th Dec 2014 3:11 pm
OPEC is now wanting $40 a barrel of oil.
http://www.zerohedge.com/news/2014-12-14/crude-crash-set-continue-after-arab-emirates-hint-40-oil-coming-next
Apneaman on Sun, 14th Dec 2014 5:12 pm
The NY Post. Another Rupert Murdock tard rag.
rockman on Sun, 14th Dec 2014 6:06 pm
Spec – “…as an OPEC member and exporter, they (the KSA) voted against production cuts and have not cut their production. Those are things they could have done but did not.” True. Just as Russia, Norway, Nigeria, the US shale producers, et al could have done but did not. So why all this emphasis just on the choice made by the KSA and not the other commodity providers? For instance the US doesn’t export oil but we do export the products refined from 1 BILLION bbls of oil yearly. If the US gov’t banned the export of refined products imagine how demand for products from foreign refineries would boom. And that would allow oil exports to raise the price of oil.
So again: why is everyone pointing a finger just at the Saudis? The health of their economy is more dependent on the price of oil than Russia, Norway or the USA.
Makati1 on Sun, 14th Dec 2014 7:13 pm
This article is just a tanker load of government cool aid for the dumbed down masses. Entertainment while they are waiting for the next Super Bowl. Nothing for intelligent, rational people to read.
Boat on Mon, 15th Dec 2014 6:06 am
Blame Obama for fuel efficiency that drove demand down.
rockman on Mon, 15th Dec 2014 6:30 am
“Blame Obama for fuel efficiency that drove demand down.” IMHO the POTUS gets neither blame nor credit in that regard. The govt might have mandated better mileage for NEW vehicles but the average mpg of the EXISTING rolling fleet has changed very little since he has been in office. The effect of new mileage standards won’t be felt for about 10 years. And that will still be dependent on which vehicles the public is buying at that time.