History has shown, a big change in energy markets often precipitates a big change in geopolitics. The world is on the cusp of a geopolitical oil reset. The global pandemic could well undermine international institutions, reinforce nationalism, and spur de-globalization. Prepare for more fragile or even failed states, and the risks that can accompany them. The meltdown in oil markets is turning back the economic clock for Saudi Arabia, putting it on track for the deepest contraction in two decades. The price of Brent crude crashed by more than 50% in March, contributing to a record $27 billion monthly drops in the Saudi central bank’s net foreign assets. State oil revenue has decreased by more than half, and non-oil revenues are decreasing as well due to COVID. Crude had recovered slightly but is trading around $20 a barrel — compared to over $60 a barrel when Saudi officials announced their 2020 budget in December.
Saudi Arabia hasn’t witnessed a crisis of this severity over the past decades. Saudi Arabia needs oil around 80 bucks a barrel to balance its fiscal requirements. With a 20 Dollars a barrel is not even close; The Saudi economy will collapse if prices like these stay longer. The other difference versus the 2016 crash is that now Aramco is now a public company. So those investors, mainly Saudi nationals who bought on the IPO last December, are now sitting on losses. Does the Crown Prince want to explain to those investors why they lost money because of his actions? Probably not. And as if it was not enough, CHINA decides to bring the “COUP DE GRACE” TO SAUDI ARABIA. In Fact, Beijing has decided to lower its imports of Saudi oil!.
Worse, to replace them with Russian crude!… Indeed, according to Chinese customs statistics, China increased Russian oil imports by 30% in March and reduced the purchase of Saudi oil. The decision is doubly fatal for Saudi Arabia, which faces a military debacle in Yemen and a Coronavirus crisis which escapes all control, not to mention the fall in the price of oil. The Chinese oil imports were 9.68 million barrels in March, up 4.5% compared to last year!… Has Beijing rallied with Russia and the other countries targeted by US sanctions to cause the harm and losses to the Washington-Riyadh camp?!
The Chinese have decided to cut imports of Saudi crude oil at a time when the miscalculations of the Saudi authorities on the consequences of the fall in the price of crude oil and the continuation of such a process will undoubtedly have three regrettable repercussions for the Saudis and their American partners in the energy sector. China’s decision sounds like “a little coup”: Have the Chinese smelled an atmosphere of the end of the Saudi reign; and have decided to reduce their purchases of Saudi oil, or have they decided to rally with Russia and In their battle to bring down the US petrodollar and shale oil. According to the research center “Capital Economics,” the combined impact of the Coronavirus pandemic and the decrease in oil prices will result in the worsening of the Saudi kingdom’s budget deficit in 2020, increasing from 6.4 to 20% of GDP !.
And it is in this difficult and dangerous context that China decides to reduce its purchases of Saudi oil! One has the impression that the trap set by Russia and Iran for Saudi Arabia, and through it for the United States, has worked well. According to experts, the choice of the Russian market by China amounts to a “coup de grace” given to the Saudi economy! Welcome back to The Atlantis Report. You are here for your daily dose of the truth, the whole truth, and nothing but the truth. No one is predicting a swift recovery in oil prices to where we were before the pandemic struck. Oil’s Recovery Could Take Decades, Not Years Or the industry might never fully rebound from the virus, leaving massive spare capacity all along the supply chain.
The cure for low prices is low prices. Most everyone in the oil business knows that breakeven for oil production is somewhere near $40 a barrel, but that doesn’t leave any profit for the Kremlin or MBS to run their countries. It doesn’t invite investment from Wall Street or Canary Wharf, and so the price will rise to something above that, but only after the wildcatters and desperate despots have pumped their last barrel of unprofitable oil in a search for ‘cash flow now.’ Oil’s Collapse Is a Geopolitical Reset In Disguise. There’s a lot of politics in this between Saudi and Russia.
This is not about US shale producers. I would look for Saudi to probably blink first because their economy is more oil centric than Russia’s. They have this Aramco dynamic that they did not have four years ago. But frankly, Russia at these prices cannot last for a long time either. For dozens of other oil producers, the plunge in oil prices is devastating. No major oil producer can balance its budget at prices below $40. With the exception of Qatar, every country in the Middle East requires at least $60, with Algeria at $157 and Iran at a whopping $390. The average Brent price of oil over the past month has been a hair above $20. Iraq, Oman, Algeria, Nigeria, Ecuador, Angola, Suriname — not to mention two countries already on the brink, Iran, and Venezuela — are particularly vulnerable.
They may not all fail in the sense of state collapse, but many could cease to meet their public sector payrolls, never mind expenditures related to health care, education, and other services, including security. Here, of course, we are artificially keeping our choice of vicious oligarchs in power, the last thing we want is the peasants of any nation to have a free say that might harm Wall St. President Trump’s energy predominance policy was to do exactly this! Yes, the virus kicked the problem over the edge, but the surplus in oil had been piling up slowly for the past three years. Oil-rich countries were the only profitable markets for China outside the USA and Canada, and now they are gone. Barring China from North America will send them tumbling now that the oil money is gone. Low oil prices are good for all working Americans.
Only the oligarchs and political filth in this country want to see oil prices higher. When the global economy collapses, it may be the one who produces the most food that wins. I don’t know that Kennedy considered that scenario. Also, manufacturing capacity is useless if people can’t afford to buy manufactured goods. With 25% of the global workforce unemployed and 60% more under wage pressure, I just don’t see much demand for new TV’s or cars.
There are no winners here—just losers. The Relations between the US and Saudi Arabia have been strained over the recent oil price war and MBS flooding global markets with oil. That being said, this relationship goes far beyond oil.
#1. The US/UK foreign policy regarding the Kingdom of Saudi Arabia and the greater Middle East has remained essentially unchanged since the meeting between FDR and Saudi King Abdul Aziz aboard the USS Quincy in the Suez Canal in 1945. This meeting formalized US support for the Saudi Monarchy in return for Saudi Arabia guaranteeing energy for the west. Immediately following the abandonment of the US dollar- Gold peg in 1971, President Nixon and Secretary of State Kissinger met with Saudi officials with a quid pro quo.
The US would support/protect the Saudi Royal family if Saudi Arabia agreed to price oil sales in U.S. dollars and invest surplus oil proceeds in U.S. debt securities. This solidified the role of the US dollar as the world’s reserve currency and has enabled the US to apply economic sanctions, including prohibiting countries from using the SWIFT international payment system that does not follow US dictates, such as the Islamic Republic of Iran.
#2. Iran. The US/UK have not recovered from the 1979 Islamic revolution.
Iran has three things the US covets:
1) the world’s fourth-largest oil reserves and largest natural gas reserves,
2) geostrategic position in the Middle East—between Afghanistan, Pakistan, the Indian subcontinent and Central Asia in the East and Turkey and Europe in the West, and between Russia in the north and the Persian Gulf and the Indian Ocean in the South, and
3) Iran abuts the Strait of Hormuz, a strategic “choke point” through which circa 25% of the world’s energy transits.
The reason for this obsession with destroying Iran – shared by all factions of the Western ruling class, despite their differences over means – is obvious. Iran’s very existence as an independent state threatens imperial control of the region – which in turn underpins both US military power and the global role of the dollar.
” Trump has been obsessed with Iran since the 2016 campaign, repeatedly describing the JCPOA (aka ‘Iran nuclear deal’) as the worst treated ever signed by the US. As you are aware, in May 2018, Trump exited the JCPOA (aka ‘Iran nuclear deal’) and authorized the targeted assassination of Iranian Quds Force commander Qassem Soleimani in Iraq in January of this year. Multiple reports suggested that Soleimani was in Baghdad on Friday (the day he was killed) to negotiate a de-escalation in tensions with Saudi Arabia. The last thing Washington wants is the coming to power of a regime in Saudi Arabia that want to form more amicable relations with Iran.
#3. The War on Yemen. Yemen has significant geostrategic importance as they say in real estate, its about location, location, location. Yemen occupies a strategic location on the Arabian Peninsula, abutting the Bab-el-Mandeb (Arabic: ‘Gate of Tears’), which connects the Gulf of Aden to the Red Sea and the Mediterranean. Thus, the Bab-el-Mandeb is a strategic ‘choke point’ the Pentagon will want to control in the advent of a war with China. Saudi Arabia serves as a US proxy in this conflict. The US/NATO have no intention of ceding control of the Bab-el-Mandeb strait to the Houthi/Ansarullah movement. Saudi Arabia also plays an important role in US policies towards Iran.
#4. Despite all, the Saudi Royal Family is still very wealthy. They have major investments in US equity markets and other assets in the US.
#5. Saudi Arabia is a large purchaser of US weapons systems. MBS is clearly a loose cannon who makes rash decisions and does things that are counterproductive and stupid. That being said, I think the CIA will tread carefully. As the saying goes, ‘better the devil you know than the devil you don’t.’ If the USA gets out of Saudi Arabia, RUSSIA & CHINA will be delighted to take over while killing what is left of the precious PETRODOLLAR.
The US needs the petrodollars more than the Saudis need US extortion. Can you even imagine a world with Saudi oil offline? The economic disruption would be epic. If we went to take it, the cost of energy alone would wreck us. The destruction of war would cause massive disruption that would throw the world into depression, faster than it already is. First of all, it’s not 1945, and Saudi Arabia doesn’t need our protection.
They have plenty willing to befriend them for their oil supplies, and they are the number one buyer of US military weapons and have been for years. Secondly, shale oil is a Ponzi at best. Saudi Arabia did us a favor in crushing that “bridge to nowhere.” And thirdly, if Saudi Arabia quit selling us oil, it would destroy the US in a week. Without that oil? You have never imagined the chaos and economic destruction it would cause. Even if we went and conquered them and took it, the time it would take would put us in a death spiral from which we would never recover.
Once Saudis DROP the PETRODOLLAR, Guess what happens next! Easy Peasy, Calling UNCLE VLAD to the RESCUE. Vlad will ARM Saudi Arabia to the TEETH!!!!! Puppies S-500, you name, it UNCLE VLAD will SELL it to the Saudis. As IF, this wasn’t already talked about between MBS and UNCLE VLAD. And CHINA will be in there giving its 2 cents worth too. NO LOVE between CHINA and USA, NOPE, NO LOVE, Not feeling it. Its gone DECOUPLING time.
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