Saudi Arabia In Trouble
Serves the sneaky buggers right, after our country protecting them all of these years.
How Saudi Arabia Turned Its Greatest Weapon on Itself
FOR the past half-century, the world economy has been held hostage by just one country: the Kingdom of Saudi Arabia. Vast petroleum reserves and untapped production allowed the kingdom to play an outsize role as swing producer, filling or draining the global system at will.
The 1973-74 oil embargo was the first demonstration that the House of Saud was willing to weaponize the oil markets. In October 1973, a coalition of Arab states led by Saudi Arabia abruptly halted oil shipments in retaliation for America’s support of Israel during the Yom Kippur War. The price of a barrel of oil quickly quadrupled; the resulting shock to the oil-dependent economies of the West led to a sharp rise in the cost of living, mass unemployment and growing social discontent.
“If I was the president,” Secretary of State Henry Kissinger fumed to his deputy Brent Scowcroft, “I would tell the Arabs to shove their oil.” But the president, Richard M. Nixon, was in no position to dictate to the Saudis.
In the West, we have largely forgotten the lessons of 1974, partly because our economies have changed and are less vulnerable, but mainly because we are not the Saudis’ principal target. Predictions that global oil production would eventually peak, ensuring prices stayed permanently high, never materialized. Today’s oil crises are determined less by the floating price of crude than by crude regional politics. The oil wars of the 21st century are underway.
In recent years, the Saudis have made clear that they regard the oil markets as a critical front line in the Sunni Muslim-majority kingdom’s battle against its Shiite-dominated rival, Iran. Their favored tactic of “flooding,” pumping surplus crude into a soft market, is tantamount to war by economic means: the oil trade’s equivalent of dropping the bomb on a rival.
In 2006, Nawaf Obaid, a Saudi security adviser, warned that Riyadh was prepared to force prices down to “strangle” Iran’s economy. Two years later, the Saudis did just that, with the aim of hampering Tehran’s ability to support Shiite militia groups in Iraq, Lebanon and elsewhere.
Then, in 2011, Prince Turki al-Faisal, the former chief of Saudi intelligence, told NATO officials that Riyadh was prepared to flood the market to stir unrest inside Iran. Three years later, the Saudis struck again, turning on the spigot.
But this time, they overplayed their hand.
When Saudi officials made their move in the fall of 2014, taking advantage of an already glutted market, they no doubt hoped that lower prices would undercut the American shale industry, which was challenging the kingdom’s market dominance. But their main purpose was to make life difficult for Tehran: “Iran will come under unprecedented economic and financial pressure as it tries to sustain an economy already battered by international sanctions,” argued Mr. Obaid.
Oil-producing countries, especially ones like Russia, with relatively undiversified economies, base their budgets on oil prices not falling below a certain threshold. If prices plunge below that level, fiscal meltdown looms. The Saudis expected a sharp reduction in oil prices not just to hurt the American fracking industry, but also to hammer the economies of Iran and Russia. That in turn would weaken their ability to support allies and proxies, particularly in Iraq and Syria.
The tactic had been brutally effective in the past. This was the grim scenario that confronted the shah in 1977 when the Saudis flooded the oil market to rein in Iran’s influence. The 1977 flood was not the sole cause of the Iranian revolution, but it certainly was a factor: The shah’s rule was destabilized just as Ayatollah Ruhollah Khomeini mounted his offensive to replace a pro-Western monarchy with a theocratic state. In that sense, the oil markets fueled the rise of political Islam.
The price of oil also helped end the Cold War. Then, like Russia today, the Communist superpower was a global energy producer heavily reliant on revenues from oil and gas. In 1985-86, the Saudis’ decision to flood the market — which some believe was encouraged by the Reagan administration — led to a collapse in prices that sent the Soviet economy into a tailspin.
“The timeline of the collapse of the Soviet Union can be traced to Sept. 13, 1985,” wrote the Russian economist Yegor Gaidar. “On this date Sheikh Ahmed Zaki Yamani, the minister of oil of Saudi Arabia, declared that the monarchy had decided to alter its oil policy radically.”
Today, in Russia, fully half of government revenue comes from oil and gas. Even if oil returns to $40 a barrel — it twice fell below $30 earlier this year — that depressed price still creates “a dangerous scenario,” according to Mikhail Dmitriev, a former Russian deputy economic minister. Inflation in Russia hit double digits last year; its sovereign wealth fund, which bails out struggling Russian companies, is depleted; and factory closings are fueling labor unrest.
Unhappily for President Vladimir V. Putin, Russia’s fiscal crisis has coincided with his military interventions in eastern Ukraine and Syria. If Russia’s economy worsens and Mr. Putin feels cornered, he may look for ways to distract the Russian people with more rally-round-the-flag provocations, as well as induce panic in the oil markets about supplies and gin prices back up.
Future shock has already arrived for oil producers like Venezuela, whose economy has been gutted by lost revenues from oil, which makes up 95 percent of its export earnings. With inflation predicted by the International Monetary Fund to reach 720 percent this year, Venezuela has become a financial zombie state — a harsh reminder of what can happen to countries that rely so heavily on a single unstable commodity price. President Nicolás Maduro is at the mercy of the markets that, every day, nudge his tottering regime nearer the abyss.
Another oil producer, Nigeria, is running out of money, hobbling President Muhammadu Buhari’s campaign against the Islamist Boko Haram insurgents in the northeast. The plunge in oil prices has also shaken Central Asia, where Azerbaijan and Kazakhstan have expressed interest in emergency bailouts from the I.M.F. and other lenders.
In the Middle East, reduced oil revenues have restricted Iraq’s ability to wage war against the Islamic State. Persian Gulf oil producers like Qatar and the United Arab Emirates estimate collective losses of $360 billion in export earnings in the past year. Such a big budgetary hole poses problems with maintaining order at home while fighting wars in Syria and Yemen, and propping up cash-strapped allies like Egypt.
And then there is Saudi Arabia itself.
All the evidence suggests that Saudi officials never expected oil prices to fall below $60 a barrel. But then they never expected to lose their sway as the swing producer within the Organization of the Petroleum Exporting Countries, or OPEC. Despite wishful statements from Saudi ministers, the kingdom’s efforts last month to make a deal with Russia, Venezuela and Qatar to restrict supply and push up prices collapsed.
The I.M.F. has warned that if government spending is not reined in, the Saudis will be bankrupt by 2020. Suddenly, the world’s reserve bank of black gold is looking to borrow billions of dollars from foreign lenders. King Salman’s response has been to promise austerity, higher taxes and subsidy cuts to a people who have grown used to state largess and handouts. That raises questions about the kingdom’s internal cohesion — even as the king decided to shoulder the burden of regional security in the Middle East, fighting wars on two fronts. Has there ever been an oil state as overleveraged at home and overextended abroad?
Meanwhile, by concluding the historic nuclear agreement, Iran is getting out from under the burden of economic sanctions. It will not be lost on Riyadh that this adds another oil producer to the world market that it can no longer control.
The instability and economic misery for smaller oil-producing states like Nigeria and Azerbaijan look set to continue. But that’s collateral damage. The real story is how the Saudis have been hurt by their own weapon.
Read more: http://www.nytimes.com/2016/03/13/opinion/sunday/how-saudi-arabia-t...
Views: 5551
Replies to This Discussion
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Permalink Reply by RAYMOND bAUMAN on
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congress can't control Obama let alone Sanders. The problem is that USEPA s doing Obama's and the anti fossil fuel bidding in the name of Global warming. Obama's and the green crowds goal is to eliminate fossil fuel by 2090. Just look at the current coal/ mercury/Co2 reges that the SupremeCourt just Stayed. Further more go to EPA Site and look up Quad 0000 regs, (methane) rules they are trying now to extend to old and stripper well production. Landowners can kiss their free gas goodbye as most Ohio traditional production will not support the expense of updating the tank batteries. Just look at the costs PUCO just gave to the utilities for their old coal plants so they could waste our money on more costly wind and Solar power.
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Permalink Reply by bo boboski on
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A very smart man told he believes whole heartily in global warming. He said we've been experiencing it for thousands of years,if not,most of us in this part of the U.S. would still be under ice. Glaciers were responsible for the way our landscape lies today. So we better be thankfull for global warming. Don't think it happened because of anything humans have done to the environment. Someone should tell Obama to look farther back than his roots in Kenya.
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Permalink Reply by lance on
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TRUMP is not as bad as some people think. He is the guy we need in there at such a time as this. He won't take any sh-- from the Muslims and he won't apologize for anything and make us look weak and a laughing stock to the world. If a liberal gets in for another term our country will be weakened beyond repair and the enemy will take over with out firing a shot. Remember it's all bout the money. The countries we are in debt to especially China could already destroy our economy if they wanted but then they wouldn't get paid what we owe them. The technology exists to hack our power grid and take us back to the 19th century. A single nuke detonated in the atmosphere above our country would wipe everything out that runs on electricity (E.M.P.). Everything would shut down. The consequence's would kill more of us than the bomb itself. Keep your eyes on N. Korea, the fat little dicktator is crazy enough to start the ball rolling.
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Permalink Reply by Joseph-Ohio on
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So he says.
So some (many) seem to think.
I dunno.
Would it all follow through and prove true ?
Or is it politics as usual ? ? ? ?
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Permalink Reply by G.H. on
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Lance, perhaps you forget that the United States has more nukes than anyone except Russia, and probably more technological prowess than any other country. Do you really think we are going to let North Korea (a joke of a country, albeit a wild card) detonate a nuke in the atmosphere above the United States???? I think they would have to get super lucky to accomplish that. We'd blow them back to the stone age if they tried that. A hacking threat might be more realistic, but I'd still say we have the upper hand there. The element of surprise is always important, though, and I agree that North Korea is a wild card.
I guess my main point is, as much as you apparently dislike liberals (and FWIW I'm not a huge fan, just try to keep a balanced view), do you really think Obama would let any other country pull the crap you're talking about, intentionally? You don't become president by hating your country, as much as the Republicans like to assert that Obama hates the United States.
I think Trump is a great actor... he runs on whatever the people want to hear. And he has tapped into a group of people who are upset with forced multiculturalism and political correctness, in my opinion. While I think he is a great actor, I don't think he would be a great president. I don't think he would be as radical and harsh as the image he runs on... he's not quite that stupid... but I don't think he would grasp certain aspects of politics... diplomacy... that career politicians understand and respect. At the same time, I know that is part of his appeal to his supporters.
Not trying to play devil's advocate or be annoying, just not sure your sentiments are so accurate... just my opinion.
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Permalink Reply by lance on
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Thanks for the feed back on my post G.H. But while The Donald may be a great actor as you say, so was Ronald Reagan and he won the cold war. Things have certainly changed since then and now we are looking at a different kind of threat. The enemy we now face has no regard for human life and they welcome death, (Islamic Fanatics). Only about 10% of them are radical but that means that out of 1.6 billion over 100,000,000 million would agree with the Islamic terrorists that all of the infidels should convert to Islam or die. Death to Israel and death to America are the daily prayers in the Islamic nations.
North Korea would probably attack South Korea first in the event of a war with nukes and I think Obama would blink and let them get away with it. He'd send John Kerry to make apologies and appeasement.
On the other hand Donald trump would surround himself with the top military advisors and would probably take their advise unlike our current POTUS. Not to mention he would develop our gas and oil resources to the point we would become energy independent before his first term was up.
Any of the conservative candidates would be better than Clinton and Sanders on all fronts. That's just my opinion.
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Permalink Reply by Joseph-Ohio on
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Thinking that if NK and SK nuke each other there wouldn't be either of them getting away with anything - along with much of the neighboring real estate laid to waste.
NK and SK nuking each other would be a bonehead move - thinking nothing would be left of either.
China and Japan would suffer / share in the devestation as well.
SE Asia would not get over it - I think EVER.
Of course it would be a horrible loss / setback for the entire of mankind to say it in the gentlest way.
Ditto for any similar conflageration in the ME / anywhere on the globe.
Not talking about firecrackers here folks.
JMHOs.
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Permalink Reply by lance on
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Yep, I agree. But the fat little dicktator in the north doesn't care. He is a paranoid skitzo. I wonder why China hasn't put an end to him yet. He kills family members anyone else who makes him mad.
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Permalink Reply by Mike Fulper on
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NK,, is no threat to anyone... UN controlled...
German Luftwaffe is a REAL threat...
They have TWO bases in the USA..
Main one is in New Mexico.. .they have NOTHING to do with US MILITARY
Strictly all German ...... they practice UNDER 500 FOOT bombing raids
coast to coast in the USA.... been there 10 years..
GOOGLE.... German Luftwaffe Alamagordo NM....
The United States have fought the Germans THREE times...
They are the threat....
Illegal for Foreign troops to be stationed in the USA........duhhhhhh
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Permalink Reply by Joseph-Ohio on
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Holy Smoke.
Whoda thought ?
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Permalink Reply by Barry D on
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Mike,
The German Airforce does not have an airbase in the U.S.
Elements of the German Airforce train at Holloman Airforce base as do members of the airforces of other nations
The 49th Wing – host wing at Holloman Air Force Base – supports national security objectives by deploying worldwide to support peacetime and wartime contingencies. The wing provides combat-ready Airmen, and trains General Atomics MQ-1 Predator and General Atomics MQ-9 Reaper pilots (including all British Reaper pilots[1]), sensor operators and F-16 Fighting Falcon pilots. Additionally, the wing delivers Air Transportable Clinics and Basic Expeditionary Airfield Resources while providing support to more than 17,000 military and civilian personnel to include German Air Force Flying Training center operations. The wing has a proud history of service in World War II, Korea, Southeast Asia, Southwest Asia and NATO-led Operation Allied Force.
By offering NATO allies the benefits of available space at Holloman as well as the use of the Southwest's excellent flying weather, the U.S. can help maintain the strength of NATO's forces without the expense of forward-basing U.S. forces in great numbers overseas.
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