US, WASHINGTON (NEWS OBSERVATORY) — It all started in Vienna at the next OPEC + meeting, which was supposed to be a routine meeting of representatives of OPEC countries and several countries not part of this organization. Influential officials, as usual, falsely smiled and firmly shook hands in front of the cameras.
Bored journalists, trying to overcome their laziness, were preparing to write articles that no one would read before finally heading to the bar. But suddenly there was a thunder.
The panic around the coronavirus epidemic, which had a downward effect on oil prices, was an obvious threat to the Saudi economy, which was heavily dependent on oil exports. That is why the OPEC cartel exists: it allows exporting countries to agree to put less oil on the market in order to maintain its price. Saudi Arabia has proposed reducing oil production by another 1.5 million barrels per day. But Russia shocked everyone, flatly refusing to do so. The market is already saturated, Russia insisted, therefore it was the market forces that should determine the price of oil. This was not at all what Saudi Arabia had hoped to hear.
The actual leader of Saudi Arabia, Crown Prince Mohammed bin Salman, has already earned a reputation for being able to make extremely impulsive decisions that have global (and often negative) consequences. He was determined to take revenge on the treacherous Russians. Oil giant Saudi Aramco immediately lowered oil prices for its key buyers – most importantly, for China, which is the most important buyer of Saudi Arabia and Russia, and promised to increase production by 2 million barrels per day in a few weeks. The reaction to this step of Saudi Arabia was instantaneous, and its consequences hit the world markets almost as hard as the coronavirus epidemic.
During the night, oil prices fell by a third – this is the fastest drop in three decades. The Dow Jones index fell by more than 8%, the FTSE 100 index by almost 9%, the largest British companies Royal Dutch Shell and BP lost more than 32 billion pounds – about 20% of their total market value. And all this happened at a time when the World Health Organization was preparing to proclaim a coronavirus infection – which had already knocked a significant part of the global economy – a pandemic. Donald Trump quickly folded two and two. “Saudi Arabia and Russia are arguing over the price and export of oil. This, as well as fake news, caused the market to fall! ” – He wrote on Twitter, once again emphasizing that, from his point of view, the reaction of the media and social networks to the coronavirus epidemic is too hysterical.
Trump faces two different risks. Coronavirus itself is a serious problem, but there is another threat: this pandemic can be used as a cover in the course of attack on the status of a leading oil producer in the world recently acquired by America. When the United States depended on imports, they benefited from low oil prices. But now that hydraulic fracturing technology has made America a net exporter of oil, it has new vulnerabilities. And now she is being tested for strength.
That is why now the Russians did not want to play by the rules of Saudi Arabia. From the point of view of Moscow, it is now dangerous to reduce production volumes, because ultimately this will lead to an increase in demand for American oil. Reduced production will stabilize oil prices, but as a result, America’s position will strengthen. Can such an outcome be beneficial to Russia? Therefore, Vladimir Putin put the interests of his country in the first place and unceremoniously broke the agreement with Saudi Arabia on the reduction of production, which worked for three years – the agreement officially expires in April. (This is Putin’s obvious desire to help Trump reelect for a second term by any means.)
This price war cannot be called exceptionally bad news for the United States. It will result in lower prices at gas stations, and in itself will become a pretty good incentive. The consequences of the conflict between Russia and Saudi Arabia may also be quite favorable given the fierce dispute between Russia and Turkey (a member of NATO), as a result of which the armies of these countries recently clashed with each other in northern Syria. In addition, do not forget about Iran. Lower oil prices will do even more harm to the economy of Iran, Russia’s most important ally in the region and the sworn enemy of the United States.
Now, given the upcoming presidential election, Trump has focused on the stock market – for obvious reasons. More often than not, Americans who make decisions about who they should vote for do not pay attention to foreign policy issues. And since Trump invariably takes his laurels every time the stock market rises to a new height, he fears that he will inevitably be blamed if the stock market falls.
For ordinary Americans, the most important point remains the following: no matter who wins the fight for strength between Saudi Arabia and Russia, the American shale industry will definitely lose. Russia carelessly made it clear that Moscow had enough resources in its reserve to cover budget holes for six or even ten years, even with an oil price of $ 25 per barrel. Meanwhile, in the next few years, the American shale industry will need to pay loans totaling about $ 86 billion. If Saudi Arabia fulfills its promise to flood the global market with cheap oil — and it may simply have no other choice — it could be a fatal blow to US shale companies,
I wonder how Trump – who hates personal betrayal more than anything else – will react when he finally realizes that the Saudi leader, with whom they went through fire and water, is now preparing to destroy the American sector, which Trump is most proud of. In addition, it is interesting whether Mohammed bin Salman will ascend the throne and be able to maintain the support of his people now that the world is facing years of unprecedented economic and political turmoil. Until now, for the most part, he adhered to the Singaporean model of governance, although with an obviously Arabian bias: he granted personal freedom, but at the same time limited the participation of the people in political activity in the name of social stability and economic growth. This model worked in Singapore and other Asian “tiger countries,” because there the elite fulfilled all their promises. However, it is becoming increasingly clear that bin Salman will not be able to fulfill his.
Before in many cases – first of all, when he launched a catastrophic war against Yemen and ordered the journalist Jamal Khashoggi to be barbarously killed, it was rather difficult to understand what motivated bin Salman. His actions are solely due to rage? Does he really believe that as the global economy moves toward recession, demand for Saudi oil will increase, and this will compensate for the fall in prices? Like it or not, his behavior remains incomprehensible.
In Saudi Arabia, wherever you look, disaster looms everywhere on the horizon. This week, Katif, a Shiite region in the oil-rich eastern province of Saudi Arabia, was quarantined for two weeks due to coronavirus. Now foreign citizens are forbidden to enter the country – and this is only a few months after the start of the new tourism industry (this was done as part of attempts to diversify the economy). Mosques in Mecca and Medina were closed, a small pilgrimage was suspended, and if this virus does not magically disappear within the next few months, the annual hajj will be canceled for the first time in history. This will result in billions of dollars in losses for a country with a huge budget deficit of $ 50 billion – a country
Meanwhile, military checkpoints were being built throughout Riyadh due to the fact that bin Salman began another sweep of his alleged opponents. Dozens of princes, senior Homeland officials, and military leaders were arrested and charged with planning a coup with the support of Washington intelligence agencies. Bin Salman, pushing Russia away from himself and starting a war against the American oil shale industry, found himself in greater international isolation than ever before, and lost powerful friends and allies within the country – except for the aging king. He dealt a blow to the global economy, and by doing this, he may have created a ton of problems much closer to home.
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Article is written and prepared by our foreign editors from different countries around the world – material edited and published by News Observatory staff in our US newsroom.