World Oil Politics 94

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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94 thoughts on “World Oil Politics

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  • YouKnowMyName

    Ukrainian reforms are a-coming, which is good news if there’s an associated outbreak of externally funded peace, for a change!

    according to leaked documents (here hosted in USA, in Ukrainian language

    from, allegedly, the new UA government, with its (ex-?)State-Department US Finance Minister, this is the response of the state to the near bankruptcy & crisis, in other words, what EXTREME austerity looks like, first INCREASE TAXES then slash the things that you might hope your taxes would give you…! Is Osborne following this thread?

    cut public education in Ukraine from 11 to 9 years…

    education will no longer be funded by the state…

    no more free food for children in school or for patients in hospitals…

    healthcare will no longer be completely state-funded…

    proposing to drastically reduce pension benefits…

    Women will have to work 10 more years to qualify for a pension, and men an additional 5.

    proposing to FREEZE pension benefits, i.e. no longer adjusting to the high inflation unfolding in Ukraine.

    do away with a number of other public services…

    proposed slashing the number of judges, prosecutors, and police…

    proposed reducing the number of members of parliament from 450 to 150…

    this change in the social contract might be what is required for stability (in addition to peace), with the IMF having problems to supply the newly needed $15B to keep Ukraine afloat (according to the FT)

    Extracts from Financial Times December 10, 2014, “IMF warns Ukraine bailout at risk of collapse”

    Peter Spiegel in Brussels and Roman Olearchyk in Kiev. The International Monetary Fund has identified a $15bn shortfall in its bailout for war-torn Ukraine and warned western governments the gap will need to be filled within weeks to avoid financial collapse…

    Pier Carlo Padoan, the Italian finance minister who chaired a discussion of Ukraine’s financial situation at a meeting of his EU counterparts on Tuesday, said EU resources should only be mobilised if Kiev made a “stronger effort” towards implementing reforms

    …data also showed the value of its gold reserves had dropped by nearly half over the same period. A person with direct knowledge of the central bank’s policy said part of the drop had been due to large-scale gold sales.

    An IMF mission is currently in Kiev for talks with the government on the future of the programme.

    According to two people who attended the EU meeting, concern over Ukrainian finances has become so severe that Wolfgang Schäuble, the German finance minister, said he had called his Russian counterpart, Anton Siluanov, to ask him to roll over a $3bn loan the Kremlin made to Kiev last year.

    George Osborne, the UK finance minister, expressed surprise at the request, attendees said, saying the EU was now asking for help from Russia at the same time it was sanctioning the Kremlin for its actions in Ukraine.

  • Jemand

    Let’s get something straight, Craig. Regardless of how you feel about renewable energy, you have made it clear that you don’t give a shit about the environment as evidenced by your support for mindless population growth which is driving the inevitable destruction of ecosystems and mass extinctions of fauna and flora.

    As for the drop in oil prices, reports indicate that OPEC member states are engaged in a price war with US shale oil producers in order to break them. Of course, OPEC no longer has any control over production by its members so what we are witnessing might be a downward spiral of prices in response to OPEC members trying to maintain export revenues by ramping up production.

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