[FoRK] geopolitics of low oil prices

J. Andrew Rogers andrew at jarbox.org
Sun Jan 10 23:20:03 PST 2016

> On Jan 10, 2016, at 9:24 PM, Lucas Gonze <lucas.gonze at gmail.com> wrote:
> First the quote:
> "Gasoline prices are driven mostly by four factors: oil prices, proximity
> to refineries, refinery capacity and state taxes and levies. Oil prices
> have dropped below $33 a barrel and continue to collapse. The recent
> decision by Saudi Arabia to continue to keep its oil exports high
> essentially has dissolved the OPEC cartel. The decision also has forced the
> kingdom to chop its 2016 budget."
> Now the red meat:
> What are the geopolitics of that choice by the Saudi's? In particular, how
> does it benefit them in their conflict with the Iranians?

Foreign reserve warfare between petro-states is my guess. Among major petro-states, Saudi Arabia has deep foreign reserves relative to imports, much deeper than Iran. 

If you push the price of oil low enough, it is a game of chicken to see which petro-state's foreign reserves hit zero, a situation correlated with governments imploding. Pushing the value of their only significant export to zero is much more effective than a trade embargo; there is no black market for worthless goods. If Saudi Arabia is disciplined they should be able to easily outlast Iran, the latter is living more paycheck to paycheck. 

The US is not a big enough producer by itself, but if the US and Saudi Arabia — #1 and #2 producers respectively — leave the spigot open at any price then they can materially damage a lot of petro-states, which includes a lot of countries the US and Saudi Arabia don’t particularly like. I would not be surprised if the US sold this to the Saudis, since Iran is particularly vulnerable; Iran will find itself in a dire situation long before the Saudis run out of foreign reserves to absorb the damage to their own country.

I think the US government has found that suddenly being the world’s top producer of oil has a lot of geopolitical utility, though from the opposite direction as OPEC. 

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