Tag Archives: OPEC

Economics, GCC, OPEC, Saudi Arabia

Crude Oil Price as a Two-Edged Sword for the GCC……….

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“Additionally, the Saudis get a chance to deal Russia, Bashar al-Assad’s stalwart ally, a bloody nose, by driving down the cost of oil and hurting Moscow’s hydrocarbon revenue streams, which prop up a shaky domestic economy. As oil prices have fallen so has the value of Russia’s Rouble, plummeting 35% since June. Killing two birds with one stone would seem a smart policy, especially since it is highly unlikely to result in the sort of military escalation the Saudis wish to avoid. How long can the Saudis keep this game up? Realistically a few months, but if the price of oil keeps falling the Saudis may have to rethink their strategy……………”

Oil prices normally rise during times of economic growth in the USA and especially during periods of geopolitical turmoil as is happening in Eastern Europe and across the Middle East and Libya. But oil prices have been going down for some time now in spite of speeding US growth and turmoil in producing regions.

Some have predicted that the oil price decline may come to bite those who engineered them for political reasons, such as Saudi Arabia and the United Arab Emirates. It was also argued that the Persian Gulf Arab producers have huge sovereign funds that can cushion the domestic economic impact.
Fine and dandy, but we must consider the impact on the sovereign funds and on local GCC Gulf financial markets and on the public finances: (a) The Gulf sovereign funds are invested mainly in the world markets and are losing value as American and other markets decline with the price of crude; (b) Domestic GCC markets are now also tanking, from Saudi Arabia to Dubai, which will bring political pressure on the princes, shaikhs and potentates to support the stock markets. Many middle class families in the GCC are suffering huge market losses, estimated in many billions of dollars. In the Gulf, princes and potentates from Abu Dhabi to Riyadh rely on patronage as well as a ruthless mercenary security apparatus to keep absolute political power. Now there will be clamor for some more patronage to help market investors: you want to keep absolute political power, you gotta pay for it (from the people’s money, of course). Which in turn will create more pressure on the domestic budgets and on the value of sovereign funds.

In addition, now the oil price decline is beginning to be seen as a negative for the US economy. Odd, after decades of blaming the rise of the same variable for slow growth.
Given the shale fuel industry and the huge investments in it, as well as the importance of the major oil companies and their credit standing, the US economy now shares one thing with the Iranian and Russian economies. Some market ‘analysts’ now stress that the U.S. financial markets need oil prices to move up for the markets to rebound from recent losses. But does Main Street America need high oil prices back? That is unlikely.

Interesting: the USA, Iran, and Russia all ‘need’ higher oil and gas prices now. 
Cheers
Mohammed Haider Ghuloum                          Follow ArabiaDeserta on Twitter

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Economics, Iran, OPEC, Petroleum, Saudi Arabia, U.S. Foreign Policy

Oil Weapon Redux: Saudi Oil Policy vs. Iranian Regional Policy vs. Ebola vs. Obama Sanctions……..

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There is new speculation about the ‘oil weapon’ in Arab media, in independent Arab media that is not owned by the Saudi or UAE or Qatari princes and potentates. This speculation has now also spilled into some Western media outlets. It claims that the Saudis, the usual crude oil ‘swing producers‘ of OPEC, are not playing their usual role these days. And they attribute this to regional strategic reasons.
The speculation is that the Saudis want to apply some economic pressure on their Iranian rivals (and perhaps on the Russians as well). Not the kind of direct crude type of economic pressure in the form of the blockades used by the Obama administration, but a more genteel ‘market’ type of pressure. If oil prices are low enough, this theory seems to go, then the Iranians will feel the economic pinch and reduce their support for Al Assad in Syria, Hezbollah in Lebanon, and perhaps reduce their involvement in Iraq and other places.
The idea is not new: it was expressed by the Saudis after they lost out in Iraq a few years ago. At the time, some minion at the Saudi Embassy in Washington opined in American media (the Washington Post?) that his country can drown the market in oil and hurt the Iranians. I wrote then (presciently?) that this may be a delusion, that the Saudis themselves cannot afford very low oil prices, given population growth and emerging political pressures at home.
The reduction in oil prices also coincided with the initial Ebola panic which impacted the travel outlook and hence the demand for fuel.

As if responding to this policy, or speculation about it, the Iranians have just announced a huge offer of weapons for the Lebanese military (which is secular but represents the sectarian and confessional divisions within that country). They seem to be in a race with the Saudis (who earlier announced a conditional $3-4 billion of French weapons) and the Americans to arm the (so far multi-sectarian) Lebanese military.

Cheers
MHG 

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Economics, OPEC, Petroleum, Sanctions, U.S. Foreign Policy

Remember When the Oil Weapon Was Blackmail and Evil?……….

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“Now time has abruptly run out. The Arabs, who control nearly 60% of the world’s proven deposits, are slowing down the flow. Through this strategy of squeeze, they hope to pressure the industrial nations into forcing Israel to make peace on terms favorable to the Arabs. Moreover, they are steadily intensifying their oil shakedown. Originally they planned to reduce production by at least 5% each month. Later they embargoed all oil shipments to the U.S. and The Netherlands, in punishment for their support of Israel. Last week, showing new unity and clout, ten Arab countries announced that production for November will be slashed a minimum of 25% below the September total of 20.5 million bbl. per day. Though there has been promising progress toward a lasting settlement in the Middle East, the Arabs vow that they will continue their cutbacks and embargoes until Israel withdraws behind its 1967 borders………….”

That was during the Yom Kippur War of October 1973. The Arabs, at least the regimes and media, still claim that war was won. Initially the first round of the “Ramadan War” was won, but the military tide had turned decisively before the ceasefire that was engineered by the Nixon administration. But official celebrations and/or commemorations are held in Egypt every year on this occasion, sometime twice a year: once in October and again during the Islamic Hijri month of Ramadan (usually the two don’t coincide, although they did in 1973).
That Arab oil embargo of 1973 was widely denounced as blackmail and evil in Europe and North America. Looking back, the Arabs got a bum rap on that one: it is not the act of blackmail itself, but who does it that makes the difference. Something must have happened since then. Now it is the Western powers that impose oil and gas embargoes: against Russia, Iran, Syria, Iraq (in the past) and others who do not comply. Countries that break any Western embargo or blockade are punished, and embargoed themselves. And it is not blackmail anymore: it is cool now. It is considered as part of a wise clever strategy to “shake down” other countries, just as the Arabs were perceived as “shaking down” the West in 1973. The only difference is that the Western powers have the upper hand now, economically speaking. The shoe is on the other foot. Speaking of change………..
Not all blackmails, or shakedowns, are equal.
Cheers
Mohammed Haider Ghuloum

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Iraq, Jihadis, OPEC, Petroleum, Syria

The IS Caliphate and Kurdistan, Jihadist Enclave Facing Two Fronts………

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“Russia is asking the U.N. Security Council to condemn the illegal sale of Syrian oil by terrorist groups and encourage all countries to take “necessary measures” to prevent it. A draft presidential statement circulated to council members and obtained Monday by The Associated Press expresses “grave concern” at the seizure of oilfields in Syria by the Islamic State of Iraq and the Levant or ISIL and Jabhat al-Nusra and stresses that any export or import of crude oil without authorization of a sovereign state is illegal………….”

“Militants, who declared an Islamic caliphate in the Middle East, now claimed to have seized Syria’s largest oilfield. Fighters of the Islamic State, previously known as Islamic State in Iraq and the Levant (Isis), said they took over the al-Omar oil field in the eastern Deir al-Zour province from rival rebel groups. Video footage uploaded online showed armed Islamic State jihadist standing in front of the entrance of the field as the group’s flag flew over a sign reading “Euphrates Oil Company – al-Omar field…………….”

The Wahhabi Jihadists are nowhere near Iraq’s major oil fields, but they have grabbed some Syrian oil fields. Apparently there is worry that they will soon start shipping Syrian oil to buyers. There is a precedent for this: already foreign buyers are eager to buy oil controlled by Kurdish separatists in Iraqi Kurdistan. The Turks and among those mentioned in reports. Already Benyamin Netanyahu, sensing a future opportunity, has blessed the Kurdish ‘enterprise’ when he opined (without being asked) that they should be able to go independent. Netanyahu, who is not known to observe international legal niceties anymore than his neighbors, would not accept the same independent ‘fate’ for Palestinians.

Would an Islamic State be in the future of OPEC? Fortunately not: the Jihadists may harass the vast border region between Syria and Iraq for a few more years, but they may have reached their peak during the last week of June 2014. From now on, it may be the period of pushback in both Iraq and Syria. The hairy ones are likely to get squeezed on two fronts now, with their ‘realm’ getting smaller. If the tribes turn against them, they may be fighting on three fronts. That would be an untenable situation if their suppliers and enablers in Turkey and some Arab states tighten the squeeze on the flow of supplies and fighters. Even the mighty Wehrmacht could not withstand a multi-front war for long.

Cheers

Mohammed Haider Ghuloum

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