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 Joseph-Ohio on
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See my earlier reply to your comments above.
What I wrote earlier still holds true for me and mine.
J-O
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Permalink Reply by Thomas Malcolm Pendergast on
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Hi Joseph!
Political and industrial leadership to blame for the downturn? I think it would be more accurate to blame the executive branch of the government more than the legislatures. In other words, the EPA (and their enablers like the Sierra Club, World Wildlife Fund, Greenpeace, Riverkeepers, the Hunt Foundation . . .), Bureau of Land Management, Fish and Wildlife Service, etc.
Personally, I have a pretty high regard for Senator Rob Portman, State Senator Bill Seitz (Hamilton county), State Representative Troy Balderson (Zanesville) and Representative Pat Tiberi. Each one of these guys have contributed a lot to promoting energy-related commerce for several years. I know for sure that they work very hard at promoting our interests and welfare.
Lack of industrial leadership? Name some specific businesses in Ohio that are undermining our interests. Marathon, the most successful company in Ohio, bar none? Cardinal Healthcare, the second most successful? General Electric who moved their global headquarters to Cincinnati from Connecticut? P&G? Kroger? Timpkin? Honda? Nationwide? The Andersons? Ariel Corporation?
You say you don't think it's too smart to be trying to do business with hostile flags / bending over backwards to do so while sacrificing the domestic citizenry / their economy / their standard of living here at home,
Do you consider Saudi Arabia, Abu Dhabi (e.g. Nova Chemicals on the Ohio River and Sarnia, Ontario, a major user of Ohio ethane), Thailand (e.g. PTT Global Chemical, Belmont county), the U.K. (e.g. INEOS which is now exporting Ohio ethane every single day to Scotland and Norway) or Japan (e.g. Honda) "hostile flags"? Are they undermining our prosperity in Ohio?
The people who are bending over backwards to attract "hostile flags" to Ohio are our legislators and people like David Mustine of Jobs Ohio.
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Permalink Reply by Joseph-Ohio on
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Personally I consider any flag in competition with our best interest as hostile in that context,
Competitors are not friends / allies the way I'm seeing things these days.
Only friends and allies are un-hostile.
I'll let everyone pick their own un-hostile flag.
I've picked mine - it's the stars and stripes for me - no other - but I wonder how it's leadership views me and mine many times.
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Permalink Reply by Joseph-Ohio on
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I'll give you this much.
Maybe the only time a flag will find a 'friend' or an 'ally' of another is during a war effort.
Where are we on that ? ? I guess I'm kind of confused about all that.
Do we have a coalition facing a common enemy or enemies ?
If not then we have no 'friends' or 'allies' only un-named enemies and numerous 'competitors' who from my perspective are hostile and not 'friends' or 'allies'.
I think I and any others who find themselves kind of confused on all of that ought to seek definition / clarification. I know I could use it !
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Permalink Reply by lance on
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I like the "Don't Tread On Me" flag with the coiled up rattle snake. I have both of them flying on my front porch. The Red, he White, the Blue and the Yellow "Don't Tread On Me".... :) Our POTUS needs to quit kissing the back sides of our enemies and start letting them know not to mess with us.... or they will end up 'snake bit'.....
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So, are Saudi Arabia, Abu Dhabi, Thailand, the U.K. or Japan "hostile flags"? Ford, GM (American), Chrysler (Italian) and Honda (Japanese) compete with each other; they don't have each other's best interests at heart and maybe they don't have my interests at heart either. Let's kick out all the foreigners. No more Arcelor-Mital, Honda, Chrysler, Nova and Imperial Chemical (there go our ethane sales), INEOS (more ethane for rejection/flaring/venting), no more Husky refineries in Toledo and Lima, no more Schlumberger, Chicago Bridge & Iron (Dutch). Out with the lot. We'll all be much better off.
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Permalink Reply by Joseph-Ohio on
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Oh.
Sarcasm.
I say if the shoe fits.......
So, however, I take it (by your definition / from your perspective then) we have no enemies or hostile flags ready to eat our lunches (or kill us) ?
Still looking for definition myself.
Alot of money to be made in the gray area however, isn't there ?
I think we have to admit that it all kind of runs together / blends - doesn't it ?
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Permalink Reply by Joseph-Ohio on
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Enemies - guessing you will probably cite Radical Islamic Fundamentalists as our enemies.
As do I - but I think there are many more - such as those that offer the RIF support - which I would be inclined to think include some of those 'competitors' discussed briefly above.
Any merit in that way of seeing things in your opinion ?
Again, it all seems to run together / blend doesn't it ?
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Hi Joseph!
You haven't been very specific about who you think enemy flags are (other than Radical Islamic Fundamentalists who have been very explicit in declaring that they are our enemy so I guess that includes elements of societies in Libya, Egypt, Lebanon, the Gaza Strip and the Palestinian Authority, Iran . . .).
So I kind of have to flounder around trying to guess which flags you think our enemies are. Would you say they include the flags of Iran, Turkey, Venezuela, Ecuador, Israel, Lebanon, Saudi Arabia, Abu Dhabi and/or Japan?
Actually, only the last three of these countries have any significant investments in the U.S. The 600,000 bbl/day Motiva refinery in Port Arthur, Texas (the largest in the U.S.) is 100% owned by Saudi Aramco. Abu Dhabi owns 100% of the Nova Chemicals petrochemical plant in Sarnia, Ontario which imports all of its ethane supplies from Ohio through the Sunoco Mariner West pipeline. And Japan's Honda has been making cars in Ohio for decades now.
Tell me, Joseph, how these companies are undermining our economic well being in Ohio.
Enterprise Pipeline Partners' ATEX (Appalachia to Texas) pipeline carries Marcellus/Utica ethane to Mont Belvieu, Texas. They are now developing the Elba Island, Georgia LNG export terminal in conjunction with Ishikawajimaharima Heavy Industries Engineering and Construction (IHI E&C), a 160 year-old Japanese engineering company (thus, complicit in a clear enemy of the United States, fascist Japan!). It will be supplied with methane primarily sourced from Ohio, Pennsylvania and West Virginia. Below, you can read about this project. After reading this, please tell me how you think this project undermines Ohio's economic well being.
April 6, 2016
The approximately $2 billion Elba Liquefaction Project will consist of 10 Movable Modular Liquefaction System (MMLS) trains using Shell proprietary technology. The new units will connect to Kinder Morgan’s existing re-gasification terminal at Elba Island, which will be modified to receive liquefied natural gas (LNG) from the new liquefaction facilities. Modifications to the existing Elba facilities will include compression for vapor handling and new pumps for loading the LNG on vessels for export.
[Note, Joseph, that these compressors will be sourced from Ariel Corporation of Mount Vernon, OH]
Shell is the customer for 100 percent of the liquefaction capacity and ship-loading services being developed by the project. When completed, the Elba Liquefaction Project will process and liquefy a total capacity of approximately 2.5 million tonnes per annum of LNG.
The companies have developed a schedule that reflects the modular aspect of the new liquefaction facility. Initial engineering, procurement and construction planning are being performed by IHI E&C’s Houston office while awaiting approval of the project by the Federal Energy Regulatory Commission (FERC). In addition to project modularization, execution will feature significant instrumentation and electrical engineering, logistics and interface management, procurement, supply-chain expertise, and large scale construction.
From the outset, the companies share a commitment to establish and maintain a collaborative effort and an HSE (health, safety and the environment) mindset that fosters ZERO HARM for the workforce and the environment, built on continued HSE culture reinforcement.
The execution strategy includes local subcontracting for site services, local hire for labor, utilization of local vendors for consumables, and working with local authorities on traffic and other community interests. Proactive quality management will encompass every aspect of the project, from EPC through to commissioning and start-up.
The project also will exemplify IHI E&C’s business model during the execution phase with a specific focus on value to the customer, collaboration and performance.
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Permalink Reply by Joseph-Ohio on
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Floundering around are you ? ?
Me too - and I've written as much ! !
Actually that is the heart of my point ! !
IIMHO it's NO GOOD teaming and investing in other countries if they're funding 'the WAR efforts' against us.
Let's just worry about and invest in providing the best standard of living for OUR population.
If error is tolerated let's err in OUR best interest.
If any industrial entity / or politician doesn't embrace that posture these days they're not with us so that makes them against us.
No more blending - I think it's way past time to draw lines in the sand.
Let's get some definition of which side of the lines everyone stands.
JMHOs
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Permalink Reply by lance on
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There are too many liars out there now. Our enemies will lie and the politicians will believe them. Radical Islam is the most dangerous threat we face now and our POTUS won't even call it what it is. He is so afraid of them he kisses their a--s every chance he gets and calls it tolerance.... God help our kids and grand kids is all I can say.... GO TRUMP! And as far as lines in the sand goes, it don't mean sh-- to Obama.... Look at his record on that one....
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Permalink Reply by Mike Fulper on
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Foreign investment in the USA is never good...
Takes $ OUT of the country.. duhhhh
and the Chinese and others are buying LAND.... all over.. not good....
Trump and NATIONALISM is the only way to go.....
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