Saudi Arabia is killing the Russian economy in its fight to control oil prices | World Defense

Saudi Arabia is killing the Russian economy in its fight to control oil prices

BLACKEAGLE

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Saudi Arabia is killing the Russian economy in its fight to control oil prices
  • Dec. 24, 2015, 11:54 AM
A year ago, Saudi Oil Minister Ali Naimi made it plain that he didn't care what happened to Russia if oil-producing countries failed to cooperate with Saudi-dominated OPEC on keeping prices high by restricting production.

"We want to tell the world that high efficiency producing countries are the ones that deserve market share," he said, before singling out Russia's West Siberia as a region that wasn't very good at producing competitively priced oil.

Since then Russia's oil-dependent economy has been decimated as the price of oil has plummeted. Here is the chart of the Russian economy from OPEC's most recent report on the state of the global oil market:


OPEC

Note that Russian GDP was growing until this time last year, when the Saudis signalled that they were going to pump Russia into oblivion.

All year, oil-producing countries have been in a mad race to the bottom. Russia and the US (and a bunch of other countries) refuse to cooperate with OPEC to keep prices high, so Saudi Arabia and OPEC have been furiously pumping cheap, competitively priced oil.

The increased supply has driven down prices. Oil started the year near $55 a barrel and is now nearer $35, as this Bloomberg chart of West Texas Intermediate shows:

Bloomberg

And oil is going to stay cheap. OPEC said that a barrel of oil won't be worth $100 until after 2040, in an in-depth report on long-term energy trends.

Cheap oil isn't good for the House of Saud either, but the Saudis have more money and cheaper oil than the Russians. So pain for the Saudis is agony for the Russians. The theory is that the Saudis are trying to force Russia into OPEC, according to Ambrose Evans-Pritchard of The Telegraph:

Kremlin officials suspect that the aim of Saudi policy is to force Russia to the negotiating table, compelling it join Opec in a super-cartel controlling half the world’s production.

The Russians aren't having it, the CEO of Rosneft told the Financial Times earlier this year. President Putin, of course, famously does not like to be forced to do anything, so it's unclear why the Saudis thought this tactic would work.

Reuters/Itar-Tass/Presidential Press ServiceIt's a double-edged sword, of course.

The other factor is the Americans.

Both Russia and the Saudis would prefer it if the US's shale-oil fields went out of business. That would leave the growing Chinese market open for Russia to expand its market share there. (The Russian conspiracy theory is that the Saudis want Russia to restrict supplies only because it will curb Russia's entry into China, leaving China open for the Saudis.)

No matter how you arrange all these moving parts, the upshot is that both Saudi Arabia and Russia are bearing the pain now in the hopes of keeping the price so low that it drives the US sites out of business later, according to Quartz:

They have argued that their enormous cash reserves will allow them to weather any price for as long as it takes to finally force upstart US shale drillers to turn off their spigots.

The war has cost Russians dearly. This OPEC chart of Russian monthly unemployment (at right) shows percentage changes.

OPEC

Russia has responded not by laying people off — at 5.5%, unemployment is technically quite low — but by reducing wages and work hours. These OPEC charts of sales and production show how Russians have basically stopped making things, and stopped shopping, as much as possible:


OPEC
Saudi Arabia is killing the Russian economy in its fight to control oil prices - Business Insider
 

tasha

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wouldn't it be great if we could all come up with an alternative to needing Saudi Arabia for oil as this would stop half of the problems throughout the world and there would not really be much to fight about
 

Scorpion

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wouldn't it be great if we could all come up with an alternative to needing Saudi Arabia for oil as this would stop half of the problems throughout the world and there would not really be much to fight about
Saudi Arabia will dominate the energy market for many many years. Sorry there is no other option._-+-_
 
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The article just barely mentions that "low prices aren't good for the Saudi's either". The reality is that the Saudi government is in a HUGE budget deficit and they will be completely screwed if the price stays this low for more than a couple of years.
 

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And so that is the agenda of Saudi Arabia with its relentless pumping of oil to push down that price in the world market. I had read in one forum that Saudi Arabia is continuing with the excessive pumping not really to affect the price of oil but to get benefits from their oil while the demand lasts. The Saudis are afraid that alternative fuel will suddenly make oil obsolete.
 

Scorpion

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The article just barely mentions that "low prices aren't good for the Saudi's either". The reality is that the Saudi government is in a HUGE budget deficit and they will be completely screwed if the price stays this low for more than a couple of years.
Nope sir you are wrong. Saudi Arabia deficit is around $90 billion and it has the second highest foreign reserve. Not to mention the one trillion in bonds and investments outside our borders. We know what we are doing. Now the Russians, The US oil shale companies can all get together and drink their oil as it will not make to the market. Now Iran sanctions have been lifted which means oil prices will also go down and that will further kill the US, Russia as well. LOL
 
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Nope sir you are wrong. Saudi Arabia deficit is around $90 billion and it has the second highest foreign reserve. Not to mention the one trillion in bonds and investments outside our borders. We know what we are doing.
Typical arrogance. "We rule the world" mentality.
You are right about the $90 billion deficit. Well $98 to be precise. And wasn't that with the 2015 oil prices... which were like $50 per barrel? And just how long do you think that will be supportable? Did your government not raise the price of oil at the pump, water, electricity etc. less than a month a go? Yes you have money and investments... somewhere like $630 billion left in foreign reserves? Some of that liquid.. some of that not. I think you would also agree that the roughly $30 billion of debt taken is "nothing to worry about as we have money". Your government is already borrowing money to fund it's operations.

I'm not arguing about knowing what you are doing... I agree with that. And I do think this whole low oil price is just a nice plot by the Saudis to force cuts into the CAPEX of western companies. And it's working. But it's not a supportable situation for you guys either... 5-6 years at these prices and your country will start to look more like Yemen. So while you are fine now, you will need the price to go back up.
 

vegito12

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I think power and money can change the minds and also Sauda Arabia is making a profit out of this and hopes they are the only ones who will be supreme in the market in the oil industry and wonder what will happen in the coming months or weeks which will make Russia think about the prices in the market, and they may want to change the way they do things so they don't suffer later on in life. I wonder what the USA and Russia governments will do so that they don't lose their investments in the market and also it can be interesting to see the results which may make changes in the way they do investments, and may not put a lot of money where the returns are low and can get stressful. It is interesting to see what Saudia Arabia will do to stay on top as there is money to make and I don't see them making changing changes for any other country and also reckon that they will do more in the oil markets.
 
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