In early march, the crown prince of Saudi Arabia, Mohamed bin Salman, stopped abruptly to two remarkable princes of his own family: Ahmed bin Abdulaziz (his own uncle), and Mohammed bin Nayef (ex-crown prince). 300 other public servants –including judges and commanders of the army– fell in the sudden purge detained under accusations of corruption, bribery, embezzlement and waste of public money by the value of 101 million dollars.
The prince, emerged from the shadows, eliminating so ruthless and systematic to its rivals, has decided to get ahead by launching a pre-emptive attack now that he sees his position threatened by the deslealtades, political disputes and a lack of liquidity (with an urgent need to collect) that is leading to an economic recession caused by the war of oil between OPEC and Russia. And is that the value of oil has devalued to historic lows. The coveted black gold has ceased to shine, and now the threat with the re-structuring of power among the powers which are extracted.
Economies dependent on oil passing through a particularly delicate moment; with too many weaknesses that they can blow up the chimera of prosperity in any time. The ecological transition, the global pandemic of the COVID-19, and the dispute by the price of oil between Saudi Arabia and Russia have exploded onto the market as not happened since the Gulf War of 1991. Suddenly, this year, 2020, has shown that the market is not regulated only, and that the engine of history, crisis and conflict.
OPEC has been limiting oil production to regulate prices in an agreement valid until 1 April, but the march 7, 2020 Russia decided to get out of ‘the cartel’ to not continue limiting its development, with a few restrictions of which already were taking advantage of in the united States, which is actively expanding its oil production, upsetting the balance of supply and demand. Since then, OPEC (mostly Saudi Arabia) –that without a more integrated countries lacks increasingly useful– and Russia have begun a fight of attrition to see who produces more, increasing the demand and lowering the prices.
And in the middle of the struggle has come to the health crisis of the coronavirus, which has cleared completely the offer, causing the barrels to accumulate to the point that these days in Canada, for example, a barrel of crude oil has become cheaper than a pint of beer for five dollars. This situation has added to the united states to the equation, and that is that from the country point of reference for the capitalists of all the world, that place in which they consider socialism to universal public health, where called communist up to the more timid social democrats, there are voices calling for state intervention to sanction Russia and Saudi Arabia to put an end to the debacle of the price of a barrel of oil, or –at least– prevent the dispute between the russians and saudis have that big an impact on its economy. Voices that, far from being muted has led to Donald Trump and his counterpart Justin Trudeau to propose the imposition of tariffs on oil that comes from the outside.
The oil is still bubbling to the surface, but your market can sink
The price of oil has plummeted to less than 30 dollars a barrel more expensive than can be found on american soil. To get some perspective, when in 2015 Saudi Arabia lowered the price of a barrel to $ 26, was unable to keep it that way and ended up retreating, admitting defeat. Currently, the fiscal balance of the saudis depend on the price of their barrels to be around $ 80. It is relevant to recall, moreover, that for this to 2020 it was estimated that the price per barrel to remain in the $ 60. Not going to happen.
Iran, a victim of an economic war and sanctions u.s. that want to reduce their sale of the fuel to 0, has been selling oil more expensive than it is currently worth WTI crude oil.
Alberto Rodríguez García, a journalist specialised in the Middle East, propaganda, and terrorism
Companies and countries are entering “survival mode”. The partnerships no longer seem so solid, the globalism fraternal are nothing more than words so beautiful as empty, and the trend is towards the protection of one’s self
Although the companies maintain the extraction of crude oil, the coronavirus keeps millions of people in confinement, the production has been reduced –if not arrested– and the demand has fallen. This adds another problem to the decrease in prices, and that is if the situation is prolonged soon going to be lacking space to store the hydrocarbon. From Goldman Sachs warn that, given the tremendous cost of stopping an extraction well, the accumulation of oil can lead to waste and a price in the negative. And this week, in which we have witnessed the agonizing death of the OPEC agreement that limits the extraction of oil to its members, makes the scenario of which alert the experts of Goldman Sachs is more real than ever.
We have left behind new-old world. The things will not be as before of the coronavirus
The litany of events that have popped the oil market are also re-distributing the pieces in the game of International Relations. Leaving aside some of the seriousness, we could say that an unknown virus has done in weeks more than what the self-designated collective “anti-imperialists” and all the followers of Greta Thunberg would have even aspired to get it some time; diluting the power even more in this multi-polar world and attacking where it hurts the fossil fuel industry.
Returning to the facts and explaining the above, we are seeing that the energy market today is extremely vulnerable to changes, and this has implications on the economies most dependent on oil and gas have proved to be paper tigers. Leaving aside the perceptions of moral to the figure of Mohamed bin Salman, the prince has proven to be a visionary within the country. The reality has given reason to the project of diversifying the economy of the country in the face of the sectors inmovilistas that belong to another era; they are already out of the game.
Alberto Rodríguez García, a journalist specialised in the Middle East, propaganda, and terrorism.
If Russia and Saudi Arabia closed an agreement to stop the escalation of this crisis of the oil, depending on the country for which it is more favourable, it will be a great sample of where it’s going to shift the power in the dawn of this new era
Companies and countries are entering “survival mode”. The partnerships no longer seem so solid, the globalism fraternal are nothing more than words so beautiful as empty, and the trend is towards the protection of one same environment, the powerful oil: Russia, OPEC/Saudi Arabia and Canada/USA.
Russia has prepared for this “war” with a more diversified economy, and an estimation of ten-year survival with low prices. Saudi Arabia, however, has not been able to implement the changes he envisioned Mohamed bin Salman, and barely be able to hold out a couple of years in this situation. In the US companies are not prepared and many may fall in the bankruptcy. This means that if there is not a event surprise that stop the dispute, re-adjust the balance or damage to any of the actors, which until now were Goliath can, as the soldier’s bible, fall and be decapitated by his own weapon: the economy.
Right now only diplomacy can save the situation, and that the actors crushed that they could not afford the language of indiscriminate violence as a way of doing things, the russians and the persians, are the best. If Russia and Saudi Arabia closed an agreement to stop the escalation of this crisis of the oil, depending on the country for which it is more favourable, it will be a great sample of where it’s going to shift the power in the dawn of this new epoch that we are witnessing.
The world is a ruthless in the that the market exists for the large may eat the small. The price of a barrel of oil has fallen, and the landscape is nothing hopeful. The margin of profit each time is less and many projects cannot even cover the cost, so that only the most prepared will survive. And the time will show if “big fish” really is or if the power that we see is nothing more than the projection of a shadow amplified by the splendour of his decline.
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