tag: Russia



14
Nov 2014

Oil at 80 dollars

Those who keep an eye on such things will know that something very strange has been happening with the oil price over the past few months. Saudi Arabia, Kuwait, Qatar and the Emirates have been aggressively driving down the price of oil (and have just signalled their intent to continue doing so). This fall has not coincided with an equally precipitous drop in demand, and it is not – except tangentially, in a manner I’ll discuss in the fifth paragraph – related to the “unconventional oil” coming out of America thanks to the fracking boom. That whole fracking thing is smoke and mirrors of the first order by the way.

No, what’s happening with the oil price right now is geopolitical. What’s more, it heralds an era of increased geopolitical tension.. something that’s only starting to filter through into the mainstream. There’s a big wake-up call coming folks.

What do I mean when I say the price drop is geopolitical? Well, it’s important to understand that when it comes to oil, the Saudis (and the other Gulf Kingdoms) are very astute. Right now they possess a large enough share of the oil export market to effectively drag the global price any direction they choose. And this has a massive effect on the global economy. However, it is extremely unlikely they will still possess this influence in 20 years (even 10 years from now there’s no guarantee). Based on depletion profiles that they take very seriously (even if the western media does not), they will never possess as great a global influence as they do today.

Saudi Arabia is taking the lead on this, and is being backed by Kuwait and Qatar (with the United Arab Emirates a more reluctant fellow-traveller… this hurts their economy more than it hurts the others for a bunch of reasons). It’s important to realise that it is not an OPEC thing. In fact… OPEC is bloody furious. And with good reason; a number of OPEC nations are going to end up as collateral damage in all this (Venezuela and Nigeria are both being crucified).

Russia is also feeling the pinch. And the fracking boom in America is being hit very hard. That entire industry is a pipe-dream. It can only exist thanks to massive government subsidy in tandem with a very high oil price. Both of which can be arranged, it’s true, but more importantly… there just isn’t as much of it as has been suggested. Nowhere near as much. And ramping up production to cover the drop in conventional crude production simply isn’t going to happen.

Now, it’s unlikely the Saudis are willing to take such a large economic hit themselves simply to undermine the US fracking industry. That Financial Times article suggests that the low price could put a strain on US / Saudi relations, but as an overall economy the United States benefits from a low oil price. So I don’t see that being the case. Besides which, the US and Saudi Arabia are firm allies and they share a common enemy… Iran.

The real reason the global oil price is low* right now is because Saudi Arabia is waging economic warfare on Iran.

When a country gains a large proportion of its income from oil exports, it is possible to calculate a “breakeven oil price” for that country. That is, the price at which they must sell oil to cover government spending. Different economists tend to come up with different numbers (no surprise there) but if you see them as a guideline rather than an absolute value then they can be illuminating. CitiGroup say Saudi Arabia’s breakeven number is $89. The IMF says it’s $80. Deutsche Bank say $78. So you can see that having oil down below $80 per barrel is going to hurt the Saudis, but it’s something they can live with – this is not a nation that finds credit hard to come by. Qatar’s down in the mid-70s. While Kuwait’s breakeven is between $54 and $75 depending on who you listen to.

Not so Iran. According to CitiGroup they have a breakeven price of $130. The IMF suggests it could be as high as $140. And if you hear an analyst on the news try to explain the current fall in oil prices in terms other than an outright economic assault by Saudi Arabia against Iran, they simply do not know what they’re talking about. Because this is shattering the Iranian economy. It’s also giving a proper kicking to a bunch of other oil exporters. Nigeria and Russia both have notional breakevens above $110 and Venezuela is right up there with Iran when it comes to exposure to low oil prices. As for Iraq… if the country is to have any chance of surviving as a united entity it needs a reliable income stream, and with a breakeven price around the $100 mark, it doesn’t have that right now.

The effect on Russia is particularly concerning, especially if you’re a European like me who has just witnessed Putin sign a contract to sell a whole bunch of gas to the Chinese and can see the spectre of European gas shortages should this looming Cold War escalate (when the normally taciturn Finns start complaining about something, it’s a good idea to listen). The notion that “they need our money as much as we need their gas” has simply never been true (the Russian capacity for belt-tightening far surpasses the capacity of European governments to survive power-cuts and cold winters… so European governments will always cave first). And it’s especially not true now when the Asian economies can provide an alternate source of income. Falling oil prices puts additional pressure on Russia and is likely to drive Putin towards a more aggressive foreign policy (in my view).

But Iran is the target, and while nobody outside Gulf aristocracy knows how long they plan to keep up this assault, it is likely to only be the first in a series of oil price manipulations over the next few years. And as a result, we’re likely to see the kind of geopolitical brinkmanship that has the potential to end very very badly indeed.

* Incidentally, describing $80 as a “low” price for oil would have been dystopian madness just a decade ago.

1 comment  |  Posted in: Opinion


15
Feb 2011

On This Deity: 15th February 1989

Check out my new piece over at On This Deity

15th February 1989: The Soviet Withdrawal from Afghanistan.

Empires fall. It’s what they do. It’s inevitable.

Sometimes the collapse is due to the depletion of essential resources. Sometimes it’s a result of being overwhelmed by external aggressors. Sometimes it’s plague or a natural disaster that does it. And if all else fails, invading Afghanistan will do the trick.

read the rest …

Leave a comment  |  Posted in: Announcements


24
Apr 2008

Just testing

Hey y’all, I’ve just upgraded this place to WordPress 2.5. It was a pretty painless process, and it appears to have gone quite smoothly. If you find any broken bits, though, please let me know.

While I’ve got your attention, let me point you towards a couple of interesting things. Firstly, if you’re in Dublin (or will be before the end of June) I recommend visiting Cut-Outs and Cut-Ups: Hans Christian Andersen and William Seward Burroughs at the Irish Museum of Modern Art (IMMA). It’s not a huge exhibition, but it is a fascinating one and I suspect I’ll revisit it at some point. And yes, you heard that right, William S. Burroughs and Hans Christian Andersen. Initially I thought the link between them was pretty contrived, but there’s a couple of pieces by the venerable Danish storyteller that illustrate some truly uncanny points of contact between the two.

I was also very pleased to walk into a room containing one of Brion Gysin’s original dream-machines, and finally fulfilled an ambition to see an example of Burroughs’ “shotgun art” up close and personal. It doesn’t take very long to see the entire collection, but it’s well worth checking out.

And finally… my favourite line to appear in a news report for some time can be found right at the end of this article. Obviously read the thing before checking out the punchline.

Leave a comment  |  Posted in: Opinion


28
Jun 2007

None more Ironic

Mr Priamikov said the area was one of breathtaking natural beauty. It was much drier, colder and quieter than the western Arctic, he added. “I’ve been there many times. It’s an oasis for marine life,” he said. Asked whether it would be feasible to drill for oil, he said: “Yes”.

The shelf was 200 metres deep and oil and gas would be easy to extract, especially with ice melting because of global warming, he said.

1 comment  |  Posted in: Opinion