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| Geo-Political Poker Game Or Saudi Blackmail? |
That is partially true, but Saudi Arabia’s gambit is more complex.
The kingdom has two targets in its latest oil war: it is trying to squeeze U.S. shale oil—which requires higher prices to remain competitive with conventional production—out of the market. More broadly, the Saudis are also punishing two rivals, Russia and Iran, for their support of Bashar al-Assad’s regime in the Syrian civil war. Since the Syrian uprising began in 2011, regional and world powers have played out a series of proxy battles there.
While Saudi Arabia and Qatar have been arming many of the Syrian rebels, the Iranian regime—and to a lesser extent, Russia—have provided the weapons and funding to keep Assad in power.
Russia and Iran are highly dependent on stable oil prices. By many estimates, Russia needs prices at around $100 a barrel to meet its budget commitments. Iran, facing Western sanctions and economic isolation, needs even higher prices. Already, Iran has taken an economic hit from Saudi actions.
On Nov. 30, as a result of OPEC’s decision not to increase production, the Iranian rial dropped nearly six percent against the dollar.
The Saudis believe it can protect itself from the impact of the price drops. It can always increase oil production to make up for falling prices, or soften the blow of lower profits by accessing some of its $750 billion stashed in foreign reserves.
Still, Saudi Arabia is playing a dangerous game—there is little evidence that authoritarian regimes like Russia and Iran would change their behavior under economic pressure. Worse, the Saudi policy could backfire, making Russia and especially Iran more intransigent in countering Saudi influence in the Middle East.
In the meantime OPEC Gulf members and crisis-hit producer Russia held the line on resisting oil output cuts, a message that helped send oil to a fresh five-year low on Tuesday December 16.
A near-$20 drop in prices since OPEC declined to cut output at a Nov. 27 meeting has yet to prompt the Gulf members - who overruled calls for output cuts by poorer members such as Venezuela - to reverse course.
Russia has said it would not cut production even if oil prices fell below $60 per barrel - far below some $100 a barrel it needs to balance its budget - a message reinforced on Tuesday by energy minister Alexander Novak arriving at a gas producers summit in Qatar.
"If we cut, the importer countries will increase their production and this will mean a loss of our niche market," he told reporters, speaking through an interpreter.
"We plan to preserve the plan for 2014 production without any increase or decrease," he said.
His comments came as the rouble fell to a new all-time low despite the central bank's steep rate hike on Monday.
Oil prices dropped to below $59 per barrel on Tuesday for the first time since 2009 and are now down almost by a half since June due to weak demand and growing supply from the United States.
The collapse of the rouble and plunging oil revenue present one of the biggest challenges for President Vladimir Putin during his 15-year rule at a time when the Russian economy is already struggling under Western sanctions over Ukraine.
Novak said Russia, the world's second largest oil exporter after Saudi Arabia, will maintain its output levels even if there was no guarantee prices would not go much lower.
"No one will tell you this," Novak said when asked what was the floor for oil prices.
He also said Russia agreed with the view of Saudi Arabia that the oil market would eventually stabilize itself.
What is certain however is that the oil market and the world economy faces an uncertain outlook in 2015 as tumbling oil prices resulting from global oversupply stoke geopolitical tensions in key producers of crude, analysts say.
In fact, if no one eventually blinks in this rapidly deteriorating volatile energy based geo-political dispute, it potentially has the ability to escalate on a global scale and turn into a military conflict involving all super powers which, without any doubt, would mean the end of civilization as we know it.
EU-Digest
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