Daily Archives: December 9, 2014

World Oil Politics

The fall in the oil price is a bad thing in that it makes hydrocarbons more attractive against renewables, although on the timescale that investment decisions in energy production are taken, it would have to be sustained a great deal longer to have a major impact.

Contrary to popular myth, the fall has not been caused by Saudi Arabia cranking up production on behalf of the United States to damage Russia. Hydrocarbon supply has increased, while the increase in demand has been slower than expected. The United States itself has been responsible for a significant part of the production increase, though it is from a number of diverse sources. What Saudi Arabia has not done is play the role of market regulator by cutting back production to stabilise the price.

If you wish to see a target of Saudi inaction, it is the United States, not Russia. The single largest increase in hydrocarbon production in recent years has come through fracking in the United States. Fracking is high cost, and the fracking frenzy in the USA was built on a mound of corporate debt. Nobody would have initiated a fracking investment with oil under $70 a barrel. A few deep sea operations aside, no producers are hurt more than US frackers by the current oil price. The Saudis are enjoying watching the Americans fall on their arse.

As for Russia, I have explained repeatedly that it is a developing country economy dependent on raw commodity export. I am willing to wager that we will find that in 2014 the total GDP of Russia fell below that of Spain. Oil is not the only commodity price that is struggling. Putin has complacently presided over an astonishingly undiversified economy of which the key markers are raw commodity export, very narrow distribution of wealth from that raw commodity export, capital flight of 80% of the profit from that raw commodity export, and a consequent crippling investment shortage. The pretend sanctions “imposed” on Russia are responsible for almost none of the economic pain Russia is now suffering. Russia’s lack of value-adding industrial base and capital incontinence is coming home to roost.

I can’t finish this survey of oil politics without noting the appalling decision of the United Kingdom to open a naval base in Bahrain to service aircraft carriers. This crazed neo-imperial venture by a struggling economy is shameful. An aircraft carrier has no defensive purpose. Its entire rationale is the projection of airpower into foreign countries. That, after the total disaster of Middle East policy in the last decade, the United Kingdom is still seeking to project air power in the Middle East is horrifying. Furthermore, when we are supposedly trying to reach an agreement with Iran on its nuclear programme, it is incredibly provocative to open a major forward western
base almost within eyesight of Iran. Lastly, of course, Bahrain has a brutal dictatorial regime that has been murdering and torturing its majority Shia population for decades, with both open and covert British support. Britain’s callous action is a kick in the teeth for anybody who believes that human rights has a role to play in foreign policy.

The sooner we break up the United Kingdom the better. It really is a force for evil in the world.

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