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: 5554
Replies to This Discussion
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Permalink Reply by Mike Fulper on
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The German Air Force (Luftwaffe) and the "German Air Force Flying Training Center (GAFFTC)" at Holloman AFB
GAFFTC PatchThe German Air Force has been training its aircrews in the United States since 1958. This training took place on various bases throughout the states before it was moved to Holloman Air Force Base, NM, in 1992.
There are numerous reasons the German Air Force trains here. The area offers great flying weather and has suitable air space. Other reasons are the proximity of Holloman AFB to the German Air Force Air Defense Center (GAFADC) at Ft. Bliss, TX and the centralizing of German aircrew training for the Tornado at a single location.Ft Bliss... German base... and they also had one at El Paso Tx for awhile...
Bottom line... its all illegal......
The Luftwaffe IS NOT allowed to fly training missions in Europe.....for a REASON.. DUHHH
NATO is another useless UN FUNCTION...
The Germans use ALL GERMAN INSTURCTORS.... they DONT train under
US Officers.....
but that's fine with low information people..
How about Bill Clinton letting the Russians fly over the WHOLE USA.. and GRID every square inch....
"open skies" Treaty.... duhhhh
Read... the Constitution.....
No foreign troops quartered was stated for a reason....
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Permalink Reply by Barry D on
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Mike,
You need to re-read the Constitution.
Amendment III
" No soldier shall, in time of peace be quartered in any house, without the consent of the Owner, nor in time of war, but in a manner prescribed by law."
Communities that host military bases are compensated.
Prescribed by law - there are memorandums of understanding between the U.S. and several allies for the stationing of military personnel at U.S. bases.
BTW the German troops at Ft. Bliss have been moved to Hollman.
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Permalink Reply by Mike Fulper on
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and if you CALL Holloman AFB and talk to the Information
Officer... they will tell you the Germans have their OWN
base....off Holloman... and only train "within" their "own"
Officers.....and.... they will tell you it is ALLOWED
by the UN TREATY.... Constitution has nothing to do with
it.....If you read the Constitution.. will discover.. that...
ONLY THE SENATE AND THE PRESIDENT can sign a
"Treaty" and only with Sovereign Nations..
doesn't say anything about 'creating" illegal entietys...
The UN Treaty is illegal.....from day one.....
I suppose your happy with the Russians " flying over the US and gridding the whole country...?
UN "open skies" Treaty ? SIGNED by Bill Clinton
in 1994.....
Try reading the Constitution a little closer.... it is written
so most un educated people can under stand it...
The Constitution was illegally "superceded" in 1947....
by Truman and the Senate.......
"Communities that host military bases are compensated."
by what law ?
Prescribed by law - there are memorandums of understanding between the U.S. and several allies for the stationing of military personnel at U.S. bases.
as per the above.... "what law"
Lack of information is why the country has turned into a
communist state.....
The Military is run by the CIA... since the early 50's...
CIA was formed the day after Truman signed the Ilegal Treaty.
Trump will can the UN Treaty and all of the 19 Spy agencies
That is why the system is trying to stop Trump....
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Permalink Reply by Mike Fulper on
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"On 29 September 1999, two Luftwaffe Tornados crashed near Marathon Indian Basin, about 15 miles northwest of Carlsbad, New Mexico. The crash details were kept quiet from the American public, as the crash was investigated under Luftwaffe jurisdiction."
The above is a direct quote....
"Luftwaffe jurisdiction" ??
ON American soil and flying in USA air space
and kept from the public..??
The "Luftwaffe" has total jurisdiction on its "operations"
US Military did not have "authority" ? to investigate...
Oh that's right.... UN agreement......
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Permalink Reply by Annie Miller on
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If all we had to be concerned about was how Angela Merkle and her cohorts were poised to take over the United States of America, we would have little to worry about.
What would Angela Merkle want with the issues and problems the US is facing now ?
And I suppose the Gestapo and Hilter are still alive and scheming in Argentina ?
The house of Saudi wants our gas and oil endeavors to fail miserably; we represent a clear and present danger to their monopoly of oil prices and control.
I agree still with Henry Kissenger's advice to let the house of Saudi stick their oil where the sun doesn't shine. Let them eat and drink their oil; I would recommend a full embargo of their country. You can't create food or water out of oil; if no one buys their product, then the free market is in total control of gas and oil prices !
Way to to go way off topic and not a little paranoid; but don't take that as a fact, just my opinion ! -
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Permalink Reply by Joseph-Ohio on
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Annie M.,
Liking the way you think and the reply you've posted !
We appear to be on the same bus.
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Permalink Reply by kim hovis on
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Damn! If only Bob Crane and Vic Morrow were around. They would straighten this crap out. I figure Ben N. will. and they don't need to practice in America, but they will use S.A. airspace. Indirectly S. A. will be helping us. What happens to crude prices then?
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Permalink Reply by Joseph-Ohio on
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kim hovis,
Does Ben N. = Benjamin Netanyahu ?
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Permalink Reply by lance on
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The price of oil will sky rocket again. :)..... The vast majority in the mid-east hate us and want to see us all dead. They chant "Death to America" Death to Israel" every day as their national motto. Why do we even give them anything? That won't stop the hatred. Look what Iran is doing after we made the 'sweet heart nuke deal' with them. They mock us and make fools of our service men. Our so called "Commander in Chief" is pathetic! He sickens me...
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Permalink Reply by Thomas Malcolm Pendergast on
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To put this into a slightly different perspective, I think it would be useful to compare the economies of Saudi Arabia with Houston (or by extension, Texas, Louisiana and Oklahoma). During the '80s, energy comprised 84% of Houston's economy whereas now it only accounts for 44% of the Houston economy.
Does this mean that Houston is weaning itself off hydrocarbons? Of course, that's one way of looking at it. But, refineries and petrochemical plants are actually expanding the use of hydrocarbons (crude for transportation fuels and lubricants and ethane & propane for polyethylene and polypropylene for plastics).
Today, the Houston economy is much more diversified than it was in the '80s so it isn't so reliant on a single sector, energy, in order to retain healthy employment. It's not using less hydrocarbons. It's using more. They're just doing a lot more of other kinds of activity to power their economy today.
I would think the same dynamic is taking place in Saudi Arabia today. Just 35 years ago, the Kingdom was almost totally dependent on the extraction of crude. Today, there are 11 refineries there, most producing 400,000 bbls/day of refined products, There are several major petrochemical plants in Saudi Arabia as well: e.g. the $20,000,000,000 50/50 JV Dow-Aramco Sadara plant (which had a $7 billion IPO in 2014 totally subscribed by Saudi citizens), the 50/50 JV Sumitomo Chemical-Aramco which IPO'd in 2008, and SATORP (Saudi Aramco-TOtal Refining and Petrochemicals). Today, they are also producing aluminum, cement, fertilizers and other energy-intensive commodities domestically.
Just 75 years ago, Saudi Arabia's economy depended on camel and goat herding. Now, it's much more diversified and will continue to broaden its economic base. ExxonMobil thinks Saudi Arabia is a very attractive place to do business. Their 50/50 JV with SABIC (Saudi Arabian Basic Industries Corporation, the second largest petrochemical company in the world) is XOM's largest foreign investment.
From my point of view, I'd say that's a very impressive and speedy transformation to a more and more diversified economy. That's starting from a nomadic society that probably got a lot of their energy from burning dried camel and goat dung with scarce water resources. Today, that society has abundant power supplies, clean water, better health, longer lifespans, etc.
No single individual personifies this transformation better than Ali Al Naimi. As a 12-year old Bedoin boy, he joined Aramco as a mail clerk. For many years he was chief of Aramco and is now the oil minister. Like him, hundreds of thousands of Saudi citizens' lives have been transformed.
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Permalink Reply by Joseph-Ohio on
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TMP, you've written:
'From my point of view, I'd say that's a very impressive and speedy transformation to a more and more diversified economy. That's starting from a nomadic society that probably got a lot of their energy from burning dried camel and goat dung with scarce water resources. Today, that society has abundant power supplies, clean water, better health, longer lifespans, etc.
No single individual personifies this transformation better than Ali Al Naimi. As a 12-year old Bedoin boy, he joined Aramco as a mail clerk. For many years he was chief of Aramco and is now the oil minister. Like him, hundreds of thousands of Saudi citizens' lives have been transformed.'
I agree that all may be and I'll hazard a guess that for the most it was at the expense of the USA's Petro-Dollars and our country's citizens living standards.
IMHO that should not have happened and should not stand / hold for the future.
Just me here and my most humble interpretations and opinions.
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