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Page added on February 7, 2016
Saudis — Stop the Oil Flood – or Else
Why has this not been done? Because too many American and British politicians are on the Saudi payroll, and too much of Britain’s and America’s arms producers are dependent on Saudi business. The Saudis’ heads have swelled with arrogance while their dim-witted oil policies threaten the global economy.
One night in his tent in Tripoli, Libya, Col. Muammar Khadafi told me, “the Saudis are a very rich family hiding behind high walls, terrified their neighbors will come and steal their wealth.”
He was right. The covetous neighbor most feared by the Saudis are Iran, followed by Egypt, Turkey and, more distantly, Israel. Iraq also used to be on the list until it was destroyed by the United States in 2003.
One must keep Saudi Arabia’s fear factor in mind to understand the oil wars that are now shaking the world’s economy to its foundations.
The Saudi royal family decided to kill two competitive birds with one stone – Iran and surging US shale oil producers – by kicking off a price war to run them out of business. Saudi Arabia is one of the world’s lowest cost oil producers. The Saudis also hoped to punish Russia for backing Syria’s government.
Price wars are the last recourse of all bad businessmen.
The problem with this ham-handed strategy is that your competitors will hang on desperately and cut prices to survive, even if it means running big losses. Price wars hurt all concerned. They dislocate production, markets, future investments and capital spending.
The result of Saudi Arabia’s oil price war has been to drive the once “black gold” down to around $32 a barrel from a high of $105 in 2015. Other Gulf producers joined Saudi Arabia in slashing prices. We have gone from panic over “peak oil” (worldwide shortages) to panic that we are drowning in oil.
So far, the Saudi oil war has indeed badly damaged the US shale and regular oil industry but has not put them out of business. However, oil industry dividends are being cut way back or eliminated. Blundering by the US, Canadian and Japanese central bankers has made things far worse.
Other major oil producers like Russia, Iran, Algeria, Malaysia, Kazakhstan and Indonesia have also been badly hurt but are hanging on. The oil war has seriously damaged the economy of the European Union. Japan should have been boosted by low oil prices but is also suffering relentless industrial decline, as witness by the humiliating sale of Sharp Electronics to China’s Foxconn.
Oil has become tightly correlated to North America’s stock markets, meaning that they rise and fall with the price of oil. Low oil prices may have helped a few industries like airlines, but they have created a worldwide recession. Canada, a dire example, has been battered by low oil prices and faces a bleak future unless resources rise sharply in price.
Efforts by OPEC and other oil producers to agree to cut back production and thus foster a price rise have so far failed due to fears that nations who reduce exports will see their former markets taken by cheating competitors. In economics, it’s known as ‘beggar they neighbors.’ The Saudis and Gulf producers keep blocking a decrease in oil production.
Now, the desert oil producers are deeply worried that Iran, freed from US economic prison, will soon begin exporting at least 500,000 bbls a day of oil. Iraqis oil production is finally returning to pre-US invasion levels. Oil prices could drop even further unless a deal is reached.
But Saudi Arabia is so petrified of Iran it is very reluctant to make a deal that will help grow the Islamic Republic’s economy – and hence even limited military power. So what’s to be done?
Some critics are saying that a group of obscenely rich Bedouins should not be allowed to hold the world economy to ransom. The western powers should press the Saudis to cut production or risk seeing vast Saudi investments in the US and Europe frozen – just as was done with Iran. The Saudis should also be told to stop their bloody war against Yemen that has killed thousands, cease their human rights abuses, and cease funding dangerous Islamic extremist movements, including ISIS and Syrian revolutionaries.
Why has this not been done? Because too many American and British politicians are on the Saudi payroll, and too much of Britain’s and America’s arms producers are dependent on Saudi business. The Saudis’ heads have swelled with arrogance while their dim-witted oil policies threaten the global economy.
The Saudis and OPEC must be offered a deal by the great powers that they can’t refuse. Otherwise, the Saudis may remain a bigger threat than ISIS.
112 Comments on "Saudis — Stop the Oil Flood – or Else"
fsilber on Mon, 8th Feb 2016 1:45 pm
The problem is that the cheaper oil gets, the faster the frackers must pump to pay off their debts — which makes oil go lower still. That’s bad for the frackers, too, because they’re using up their supply for peanuts. This becomes a vicious cycle.
Instead of trying to put them out of business, what the Saudi’s _should_ have done was to reduce supply only enough to keep the price just low enough to discourage _new_ investment in fracking, and let the frackers pay back their creditors.
On the other hand, maybe Saudi’s should keep the price low until most of their foreign reserves are used up — to reduce the incentive of outsiders to take over Saudi Arabia.
MJR2030 on Mon, 8th Feb 2016 2:08 pm
Here is the deal Saudi and GCC look for. No Questions will be asked.
US and EU should bomb Syrian regime and Iranian regime to the ground. We will do for US and EU whatever they want.
mdfv2532 on Mon, 8th Feb 2016 2:37 pm
Saudi’s were the reason for 911 attack , what was USA.’s respond ??? nothing .the only country in the world that woman has no right , is SAUDI .The human rights does not mean anything in SAUDI ARABIA , They have been helping ISIS and attacking yemen and killing thousands of people .One may think , US government has closed is eyes to everything they do for their money !!!
BigPicture on Mon, 8th Feb 2016 3:18 pm
The reality is that the Saudis are reacting exactly as businessmen in a
free marketplace – the oil cartel is a fake entity to create an artificial oil price – a price that could not be achieved if the market system were a true free market. Like the artificial diamond price sustained by South Africa’s DeBeers, the oil market prices were sustained by the Saudi cutbacks – the Saudis had to take less than they could for the good of the cartel partners.
The Saudis see that the world is pumping more oil while the Saudis sit silently by and take less marketshare.
The Saudis also see the world shifting to alternative fuels with a rapidity that leaves them thinking that they will
run out of oil customers long before the Saudis run out of oil. The Saudis have decided that if the world wants a free marketplace then, by God, they’re going to get a free marketplace. By the way the oil companies in the US are real big believers in the free marketplace so they just need to shutup about the oil situation now. Also, the problem with low oil prices in the US is that the big oil companies have borrowed huge amounts from bank and the marketplace that they might not be able to pay back – and that’s what’s causing the stock volatility.
By the way, businessmen have always used low prices to gain marketshare – just read about Japan’s entry into the US marketplace and there are dozens of other examples. After they gain marketshare then prices are under the control of the survivors.
This article is an attempt to demonize the Saudis to incite the corporate community (and by extension, the nation
community) to “force” the Saudis to return to their previous, complacent oil market participation. Let the markets prevail. Nobody consulted the Saudis about the fracking oil that was being dumped on the market so why should the Saudis sit back and maintain an artificial price that is an advantage to other business while those businesses eat up you marketshare. I don’t think so.
John on Mon, 8th Feb 2016 4:40 pm
Hum, Really. I like whats happening. Energy companies are responcible for most of the pollution on this planet. This a complaint from those ultra rich that they are not getting to make the profits they want… Go to hell, tell russia to cut oil production… Saudis have been the producer that cut for the last 4 decades it Russia’s turn to be the leader that cut production to control the price of oil…
Joseph Vincent on Mon, 8th Feb 2016 4:45 pm
Come on people. Elections are around the bend. War makes money at the cost of lives. Put Clintons daughter on the front lines. Her husband to. Then make Congress put their kids and grand kids on the front lines. And how about wall street ?????. I said it before. Wall Street will be using the word recession. High unemployment. No against any minimum wage hikes. ETC.
Jon Harrison on Mon, 8th Feb 2016 6:26 pm
We ( the US) have the advantage over the Saudis in which our shale producers are still able to profit from 60$ a barrel oil. The Saudis are break even at a much higher price. They may be able to go for a short time keeping the price low but at some point they will need to push the price back up to maintain their economy. This should activate a “think tank” for US shale producers to figure out how to overcome OPECs’ schemes if it ever should happen again.
BigPicture on Mon, 8th Feb 2016 7:04 pm
Jon Harrison, It’s the other way around-
the SAUDIS can pump PROFITABLY down to
$12 a barrel while the US frackers have to have a minimum of $60 per barrel to make a profit. The problem with the oil price being low for many oil producing countries is that their economies are tuned to $80 to $100 per barrel oil.
Unless the cartel starts acting in unison
in the future, the price isn’t going up
because every oil producer needs to pump
to keep their economy going – without
the Saudis voluntarily sitting on the
sidelines the prices can’t go up.
Bigge Mike on Mon, 8th Feb 2016 9:25 pm
The Saudis are getting ALL the flack for pumping oil it seems. Russia is the largest producer of oil in the world, yet the comments never mention it. Business is business. I think the Saudis would be happy to cut production by 10%, 20% or more…..if everyone else does…REALLY DOES. If they did, would American oil cut production? You know the answer. Ahhh, Capitalism is great..unless it works against you
Jo Bob Briggs on Mon, 8th Feb 2016 10:43 pm
Stupid article. Why are the Saudis at fault for the oil glut? It is the US that nearly doubled oil production from 2006-2015 from 5mbpd to nearly 10mbpd. The low cost producers are supposed to cut production so the high cost producers can make more money and gain market share?
GregT on Mon, 8th Feb 2016 11:24 pm
“It is the US that nearly doubled oil production from 2006-2015 from 5mbpd to nearly 10mbpd.”
Exactly Jo, but no matter how many times this is pointed out, people just continue to ignore it. They also ignore the part about the extra oil on the market (The Glut™) being of high priced oil that nobody wants to pay for, or cannot afford.
There is so much propaganda being spewed forth in the MSM these day, that it is beyond belief. Yet most believe it, hook, line, and sinker.
antaris on Mon, 8th Feb 2016 11:34 pm
Feb 2009 was the month it started to grow. 7 years ago North American (US) crude production started to increase again (E.I.A source) based on debt not tech.