Tuesday, October 14, 2014

Yves Smith — Saudis Deploy the Oil Price Weapon Against Syria, Iran, Russia, and the US

The current alignment of factors gives the Saudis the opportunity to make life miserable for a long list of parties they would like to discipline, including the US.
The sharp rise in the dollar means that lowering the price of oil in dollar terms is unlikely to leave the desert kingdom worse off in local currency terms. But it undermines US energy development, both fracking and development in the Bakken, as well as more development by the majors, who were regularly criticized by analysts for how much they were spending on exploration when the math didn’t pencil out well at over $100 a barrel. Countries whose oil is output is mainly heavy, sour crude, like Iran and Venezuela, find it hard to sell their oil when prices are below $100 a barrel (or at least when the dollar was weaker, but the $80 price point, even with a strong dollar, may be low enough to cause discomfort).
 
In other words, this is a classic case of predatory pricing: set your price low enough long enough to do real damage to competitors, and reduce their market share, not just immediately, but in the middle to long term.… 
But aside from the not-inconsiderable economic impact, the surprise Saudi step looks to be an even bigger geopolitical winner. The US and Riyadh have been at odds for over a year; the Saudis were particularly unhappy over the US failure to try to topple Assad last summer (you may recall the intensity of the Administration warmongering versus the dubious US interest; even Congress showed an unexpected amount of backbone and made its lack of support for Syrian adventurism clear). The Saudis have also long been less than happy with the US refusal to attack Iran (which is a rare case of the US acting as a responsible hegemon and curbing a putative ally with a bad case of blood lust). That unhappiness has ben compounded by the US now effectively helping the Assad regime and working in as distanced a manner as possible with Iran in targeting ISIS.…
As much as central bankers detest inflation, they fear deflation even more, particularly when debt loads are high. I differ with the Martens as to the Saudi cuts being driven by desperation; oil market analysts expected them to hold the line at $90 a barrel. But whether this move is informed opportunism or aggressively defensive is moot. It throws a massive wrench into the global geopolitical and economic equations, both of which were already looking plenty rocky. 
As much as I am no fan of Riyadh, it’s hard not to admire their strategy. The Saudis look to have executed a masterstroke. They come out winners on many fronts that are critical to them and appear to at least hold their ground on others. And I have a sneaking suspicion that the neocons, who have US energy independence as one of their core assumptions, were caught flat footed by this audacious move.
Naked Capitalism
Saudis Deploy the Oil Price Weapon Against Syria, Iran, Russia, and the US
Yves Smith

5 comments:

Clonal said...

I think the Saudi's plan will be for nothing in the medium to long term. The earth just shifted under them, but they may be unaware of it - see the thread on Rossi's e-cat cold fusion generator.

Tom Hickey said...

Back to the future: are we about to crack energy fusion?

Limitless renewable energy from nuclear fusion has been"30 years away" for several decades, but now experts believe they're finally closing in on a self-sustaining reaction

Duncan Jefferies, The Guardian

Matt Franko said...

Clonal why no calorimeter in their test set up?

rsp,

Matt Franko said...

Clonal:

http://arxiv.org/ftp/arxiv/papers/1306/1306.6364.pdf

If the thing really works he should be able to hand over a couple of elements to a qualified testing lab with the wiring diagrams and have them do a measurement of power in vs. thermal out....

rsp,

Clonal said...

Matt, when something cannot be protected by patents, subterfuge and secrecy are resorted to. The EU patents have still not been granted. It is not unusual in patent filings to hold back critical pieces of information so as to prevent parallel development, and also preventing people from being able to work around patents.

If this is the case, then Rossi will definitely not allow for a hands off evaluation.