Is the oil crash a secret US war on Russia?

Is the oil crash a secret US war on Russia?


By Anthony Zurcher


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Lower oil prices, reflected in falling petrol prices at the pump, have been a boon for Western consumers. Are they also a potent US weapon against Russia and Iran?


That's the conclusion drawn by New York Times columnist Thomas L Friedman, who says the US and Saudi Arabia, whether by accident or design, could be pumping Russia and Iran to brink of economic collapse.
Despite turmoil in many of the world's oil-producing countries - Libya, Iraq, Nigeria and Syria - prices are hitting lows not seen in years, Friedman writes.

This is business, but it also has the feel of war by other means: oil” Thomas FriedmanNew York Times

Analysts identify a number of possible reasons for the steep drop - increased US production, slowing economies in Europe and China and steady production from the Organisation of Petroleum Exporting Countries (Opec).
Rather than look at the causes, however, Friedman says to look at the result - budget shortfalls in Russia and Iran - and what it means.
Who benefits? He asks. The US wants its Ukraine-related sanctions against Russia to have more bite. Both the Saudis and the US are fighting a proxy war against Iran in Syria.
"This is business, but it also has the feel of war by other means: oil," he writes.
Paul Richter of the Los Angeles Times agrees that both Russia and Iran are starting to feel the squeeze of lower prices, although he doesn't go as far as Friedman in speculating about a secret war.

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New York Times columnist Tom Friedman says it's tough going for petro-dictators


"The economic pressure isn't expected to change Putin's aggressive efforts to retain strong influence over Ukraine, which he considers non-negotiable," Richter writes. "But they are causing strains in his relations with the Russian elite and business establishment, two pillars of his political support."
As for Iran, he writes, an oil price of anything less than $100 [£62.41] a barrel will create onerous budget deficits and undermine the nation's position in ongoing nuclear negotiations with the West. The closing price on Wednesday was $81.40.

One can only hope that the oil sheikhs will come to their senses, curtail production and stabilize prices at least at $90 per barrel”

Nikolay Makeyev and Konstantin SmirnovMoskovskiy Komsomolets

"Iran's economic resurgence had enabled Iranian officials to claim they could get by even if the talks collapsed without providing further relief from tough international sanctions," he writes.
In Russia, the media have taken notice.
"The Russian economy's dependence on energy resources, gas and oil first and foremost, is often compared to drug addiction; people say that it is 'on the oil needle'," write the editors of Nezavisimaya Gazeta (translated by BBC Monitoring).
"In this case, dealings to decrease oil prices on the global market can justifiably be compared to triggering agonies that are no less painful than withdrawal from a drug. And this is being done with obvious geopolitical aims to undermine the country's economy and its influence on the global arena."
Nikolay Makeyev and Konstantin Smirnov write in Moskovskiy Komsomolets that they fear a more severe replay of the 2008-09 economic crisis: "One can only hope that the oil sheikhs will come to their senses, curtail production and stabilise prices at least at $90 per barrel."
Friedman's neo-Cold War theories aren't the only speculation making the rounds at the moment, however. For some analysts, the oil drop has everything to do with increased US production threatening Saudi Arabia's standing as the pre-eminent oil-producing nation.
Russia and Iran, in this formulation, are just not-so-innocent bystanders.
"The Saudis have seen the oil price stable through international geopolitical crises, first by increasing production to accommodate Iran, Syria and Sudan's decreasing production and then by accommodating Iraq's rising production," writes Akhil Handa of the Indian Republic.
That's changed, however, with the 70% increase in US production over the last six years.
"In a bid to restore balance Saudi could be playing its cost advantage against the higher-cost shale oil producers," he continues. "Saudi will perhaps have to let oil prices slide to $75-80 and let it stay there for a while for some US drillers to move out of the businesses and hence pricing power to get restored back with Saudi."
What's clear is that the sharp drop in oil prices is creating very distinct winners and losers on the world stage. What's not so clear is who, if anyone, is pulling the strings.
It's human nature to speculate about the schemes of behind-the-scenes players when the stakes are so high. It can also be comforting - a much preferable alternative to a system where the health of nations is determined by the random permutations of fate and the chaotic fluctuations of an uncontrollable market.

http://www.bbc.co.uk/news/blogs-echochambers-29651742

Rouble suffers biggest one-day fall since 1998 as oil slides


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The price of oil has fallen by more than a third since the summer

The rouble suffered its biggest one-day decline since 1998 as oil prices continued to fall on Monday, escalating fears about the Russian economy.


The currency slid almost 9% against the dollar before rallying after suspected central bank intervention.
Russia is heavily dependent on revenues from oil exports, making its currency vulnerable to falling prices.
Brent crude hit $67.53 a barrel, the lowest it has been since October 2009, before regaining some ground.
It was just above $70 in late trading on Monday, while US crude was at $66.34 a barrel, having hit an intraday low of $63.72 - the lowest since July 2009.



Russia is the world's second-largest oil exporter, with oil and gas accounting for 70% of its exports and half of government revenues.
Oil prices have fallen by more than a third since the summer, while the rouble is down nearly 40% against the dollar since January.
The economy has also been hit by western sanctions imposed on Russia in retaliation for its annexation of parts of eastern Ukraine.
The currency regained some ground to be at 52 roubles against the dollar and 65 against the euro, still down some 4% for the day at the end of the main trading session in Moscow.
Traders said the afternoon rally pointed to intervention by Russia's central bank, which declined to comment. The central bank has not intervened in the foreign exchange market since 10 November, saying it would do so only if it considered the rouble's fall a threat to financial stability.
Ksenia Yudayeva, deputy chairman of the central bank, tried to reassure traders by saying there was sufficient liquidity in currency markets and that the bank had prepared new economic forecasts based on a price of $60 a barrel.
Laura Lambie, senior investment director at Investec Wealth & Investment, said the Kremlin may privately welcome a weaker rouble because it helped to counter lower oil prices.
Globex Bank senior trader Igor Zelentsov said in a note: "Support for the rouble at present can only come from stabilisation of the oil price. Other factors now look secondary and of little significance."


Opec maintains output

The latest falls in the oil price follows Opec's decision last week not to cut output and leave its production target at 30 million barrels a day.
Saudi Arabia, the cartel's biggest producer, said on Monday said it was content with the decision to maintain output despite a supply glut and plunging prices.
Amrita Sen, Energy Aspects' chief oil analyst, said: "The market is still very much in panic mode. Once we get over the panic, Brent prices will probably stabilise at around $65 to $80 a barrel in the short term."
Eugen Weinberg, a Commerzbank analyst, said: "The market is still looking for a new equilibrium below $70 [a barrel], which is a little surprising given that with the current prices much of the shale oil production in the US, or part of it, will be unprofitable."


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New sources of oil, such as oil sands in Canada and shale oil in the US, have helped increase global supply and reduce prices
Malaysia's oil-dependent ringgit also suffered heavy losses, while the yen hit a seven-year low against the dollar and Nigeria's naira was down 2% to a new record low against the greenback.


China slows

The slide in oil prices was compounded by China's factory activityslowing by more than expected in November, with the official purchasing managers' index (PMI) dipping to 50.3 in November from October's 50.8, closer to the 50 point mark that separates growth from contraction.
The fears of declining demand from China also sent copper prices to their lowest level in four-and-a-half years in London and hit shares in mining companies.
Neil Williams, chief economist at fund manager Hermes in London, said: "Over-optimistic global growth forecasts have been pared back, and probably rightly so, and also China has come back on to the radar. And that of course has become a big driver for a lot of commodity prices."
Adding to the gloom were figures showing that eurozone manufacturing growth stalled in November as new orders fell at the fastest pace in 19 months, despite heavy price cutting.
The final PMI reading for the manufacturing sector in November came in at 50.1, the lowest number since June 2013.
Chris Williamson, chief economist at survey compiler Markit, said: "The situation in euro area manufacturing is worse than previously thought... there is a risk that renewed rot is spreading across the region from the core."
Meanwhile, Moody's downgraded its credit rating for Japan on Monday, citing "rising uncertainty" over the country's debt situation and prime minister Shinzo Abe's faltering efforts to boost growth, with an election a fortnight away.
The ratings agency cut Japan's rating by one notch to A1 from Aa3, after the economy sank into recession during the third quarter.


http://www.bbc.co.uk/news/business-30276353

Looks like it is all unfolding now.

what channel

How oil's become the world's most potent weapon: Forget nuclear arms. The U.S. and Saudis are behind an oil price crash that could topple regimes in Russia and Iran

• Price of oil has fallen dramatically - down by nearly half in six months
• The collapse in price means it is cheaper to fill up your car at the pumps
• But has sparked fiscal crisis that threatens to shift global power balance
• U.S. and Saudi Arabia are using market slump to wreak havoc on enemies
• While Russia - which depends on a bouyant price - is on the edge of crisis
• Most pressing issue for Britain is the fate of oil industry in North Sea basin

From Russia to America, and from Scotland to the Middle East, the dramatic fall in the price of oil — down by nearly half in six months — has sparked an economic crisis that threatens to shift the global balance of power in dramatic fashion.
As Russia teeters on the edge of crisis, America and Saudi Arabia are using the depressed oil market to wreak havoc on enemies such as Iran. The repercussions are being felt closer to home, too, with the North Sea oil industry described as being close to collapse.
The good news is that it’s cheaper to fill up your car at the pumps, but what does it mean for Britain’s national security?

RUSSIA IN MELTDOWN


The world has become used to Vladimir Putin giving tub-thumping speeches about the glory of modern Russia. His three-hour press conference last Thursday — by turns bombastic and duplicitous as he deflected questions about his country’s teetering economy — was no exception.
Railing against the sanctions enforced by the EU and America in response to the annexing of Crimea, he warned darkly against shackling the Russian bear and tearing out its ‘fangs and claws’.
During a recent visit to Turkey, however, he was forced to adopt a very different tone, announcing in clipped and petulant terms that his country’s prized new South Stream gas pipeline to Europe would not be going ahead.


The £25 billion pipeline across the Black Sea and the Balkans would have given the Kremlin a stranglehold on the energy supplies of a slew of European countries — Italy, Bulgaria, Serbia, Croatia, Slovenia, Hungary and Austria.
It would also have contemptuously demonstrated Russia’s superiority over the European Union, which had ruled the pipeline plans illegal. (The rules of the European energy market — strongly backed by Britain — say that the same company cannot own both a pipeline and the gas that runs through it because it gives them too much control over supply and pricing.)
But Putin has had to eat humble pie and cancel the whole project.
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Putin, pictured, has had to eat humble pie and cancel the planned £25 billion pipeline across the Black Sea and the Balkans

Why? The collapse in the oil price across the world — down by nearly half since June — is emptying the Kremlin’s coffers.
As the third-biggest oil producer in the world, Russia is heavily dependent on a buoyant price, deriving more than half of its budget revenues from oil and gas extraction.
The kleptocrats in the Kremlin rely on oil and gas exports to sustain Russia’s bloated and bribe-ridden bureaucracy, as well as its ruthless aggression against other countries.
But the price per barrel of oil hit a five-year low of $58.50 last week, and though it has recovered slightly, it is still far too low to keep Mr Putin’s regime running at full blast, especially given the economic sanctions the West has imposed.
No wonder the value of the rouble has plummeted, causing panic buying in Russia, the movement of money out of the country and even the jacking-up of interest rates to an eye-watering 17 per cent in a bid to stop the currency sliding further. So these are very bad times for Russia, where no one has forgotten that low oil prices brought down the Soviet Union in 1991 by eviscerating its economy. Today, they could spell doom for Putin’s attempt to recreate that Soviet empire.
He has naively set out his spending plans for the next three years based on an oil price of around $100 a barrel — which now looks wildly optimistic.
But though the Kremlin is weakened, we should not count our blessings yet. For there is a danger that the Russian autocrat will lash out militarily, distracting his hard-pressed people with another foreign policy gambit aimed directly at humiliating Nato in Europe.
With that in mind, some feel that now is the time to go easy on Mr Putin. He has learned a hard lesson from this collision with reality; we should not push him too hard, the argument goes. Instead, we should offer him a face-saving deal on the situation in Ukraine, offer to lift sanctions and prevent the Russian economy from staggering over a cliff.
I disagree. Putin does not want a deal with the West. He wants to rewrite the rules of European security. Only if we accept that countries such as Ukraine are to be consigned to Russia’s control will the hard men of the Kremlin be satisfied.
That is a concession we cannot and should not make. If we concede Ukraine, we signal that might is right. What happens when Mr Putin tries his tricks on another country — perhaps our Nato allies in the Baltic states?


THE HUMBLING OF OPEC



For all our worries over Russia, however, we in Britain should not lose sight of the humiliation of another swaggering and once-mighty force in world politics, the Organisation of Petroleum Exporting Countries (OPEC). When it burst on the world scene 40 years ago, OPEC terrified the wasteful West.
Over the previous decades, we had grown used to abundant oil, bought mostly from Middle Eastern producers — with little global muscle — at rock- bottom prices.
However, OPEC changed that. By restricting supply, the cartel quadrupled the oil price, from $3 to $12.
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Saudis remain in a strong position because oil is cheap to produce there. Above, the country's Minister of Petroleum and Mineral Resources Ali Ibrahim Naimi

That is only a fraction of today’s price — but the oil crisis sparked by the rocketing cost in 1974 was enough to lead to queues at filling stations and national panics in the pitifully unprepared industrialised world.
Four decades later, Saudi Arabia has become one of the richest countries in the world, with reserves totalling nearly $900 billion.
But the rest of the world is less at its mercy than it once was. Here in Britain, our energy consumption is dropping remorselessly — the result of increased energy efficiency.
Moreover, many other nations now produce oil. And oil can be replaced by other fuels, such as natural gas, which OPEC does not control.
Also, OPEC no longer has the discipline or the clout to dominate the market, and we in Britain are among the big winners from all this, reaping the benefits of lower costs to fill up our cars and power our industries.
At its meeting in Vienna last month, the OPEC oil cartel — which controls nearly 40 per cent of global production — faced a fateful choice.
Would it curb production and thus, by reducing supplies, try to ratchet the oil price back to something near $100 a barrel — the level most of its members need to balance their books? Or would it let the glut continue?
The organisation’s 12 member countries, including Saudi Arabia, Iran, Iraq, Kuwait, Venezuela and Nigeria, chose to do nothing, proving that its once-mighty power has withered. Oil prices subsequently fell even further.
One central problem is that several of OPEC’s members detest each other for a variety of reasons.
Above all, Saudi Arabia and its Gulf allies see Iran — a bitter religious and political opponent — as their main regional adversary.
They know that Iran, dominated by the Shia Muslim sect, supports a resentful underclass of more than a million under-privileged and angry Shia people living in the gulf peninsula — a potential uprising waiting to happen against the Saudi regime.
The Saudis, who are overwhelmingly Sunni Muslims, also loathe the way Iran supports President Assad’s regime in Syria — with which the Iranians have a religious affiliation. They also know that Iran, its economy plagued by corruption and crippled by Western sanctions, desperately needs the oil price to rise. And they have no intention of helping out.



The fact is that the Saudis remain in a strong position because oil is cheap to produce there, and the country has such vast reserves. It can withstand a year — or three — of low oil prices.
In Moscow, Vladimir Putin does not have that luxury — and the Saudis know it.
They revile Russia, too, for its military support of President Assad, and for its sale of advanced weapons to Iran.


HOW FRACKING CHANGED THE WORLD


But if geopolitics and ancient enmities are playing a big role in the price of oil, so is modern technology.
Astonishingly, America has now overtaken Saudi Arabia as the world’s largest producer of crude oil.
That comes not from the traditional American oil industry, exemplified by J.R. Ewing in the TV series Dallas, but from fracking — pumping water and sand at high pressure into oil-and-gas-bearing shale rock.
America is a world leader in this technology. Costs are low and the geology is favourable: the regions in America where drilling is done for shale gas and oil are thinly populated — such as Oklahoma and North Dakota.
Not surprisingly, the Saudis are worried by America’s fracking revolution. And the more Westerners switch from oil to other fuels — such as gas or even solar energy — the worse it is for the nations which survive on oil exports.



Saudis note with alarm the growth in energy efficiency. Every barrel of oil not consumed in the West is profit lost.
So they hope that a low oil price will at least slow the development of fracking in America — and it is true that a low oil price is bringing bankruptcy for the riskiest drillers in the new American exploration fields.
The truth is, however, that the shale juggernaut will only be slowed, not halted. In time, it will reach other countries, too, including Britain if David Cameron has his way .


Indeed, one really big question is how we use the cash windfall that comes with a dramatically lower oil price. Will we take the opportunity to improve Britain’s energy efficiency and diversify our supplies to protect against an eventual rise in the cost per barrel?

WILL THE NORTH SEA CRISIS RUIN SCOTLAND?


The most pressing issue for Britain is the fate of the North Sea basin, where costs are rising as oil and gas fields are depleting and exploration becomes more difficult.
‘It’s almost impossible to make money at these prices — it’s a huge crisis,’ the chairman of the independent oil explorers’ association said last week.
That is bleak news for the tens of thousands of workers employed in our offshore industry and their families.
But it is even worse news for the Scottish Nationalists. Their dreams of an independent Scotland were balanced precariously — ludicrously, some said — on the idea that oil and gas revenues would pay for the lavish socialist spending and bloated bureaucracy they hold dear. Now, their sums simply no longer add up.


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If the oil price stays down, Scotland’s only hope is to cling tightly to the security — and subsidies — which the Union with England brings. Above, the Cleeton North Sea oil platform





This week, an Office of Budget Responsibility simulation concluded that Scotland’s North Sea oil revenues would have slumped to just one-fifth of Holyrood’s forecasts within a year of independence if there had been a Yes vote in the recent referendum.
In 2012, The Economist magazine — for whom I am the energy editor — mocked the SNP’s optimistic economics with a cover story which dubbed Scotland ‘Skintland’, renaming the capital city ‘Edinborrow’.
The then SNP leader Alex Salmond said we would ‘rue the day’ that we published this ‘sneering’ piece. His party pals said we were ‘patronising and eccentric’. But we were right.
If the oil price stays down, Scotland’s only hope is to cling tightly to the security — and subsidies — which the Union with England brings.
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The SNP's dreams of an independent Scotland were balanced on the idea that oil and gas revenues would pay for the lavish socialist spending and bloated bureaucracy they hold dear. Above, party leader Nicola Sturgeon


SO WHAT OF THE FUTURE?


The good news is that, even as high-cost oil producers are being squeezed by falling prices, it is a different story for consumers.
A $40 fall in the oil price shifts some $1.3 trillion from producers to consumers each year, largely through tumbling prices at the petrol pumps.
The RAC believes that petrol could fall to below £1 per litre — a price not seen since May 2009. That will keep millions of pounds in motorists’ pockets.
But they should not spend it on champagne — at least, not yet.
Oil production still rests on some of the most ill-run and fragile states in the world. Iraq produces 3.4 million barrels a day, and Libya another million.
That is half of the total produced by America. But both countries are precariously balanced on the edge of collapse. Libya is no longer a functioning state, riven by a bloody struggle between parliamentary forces and Islamist militias.
Iraq has already come perilously close to succumbing to the fanatical fighters of the so-called Islamic State.
The big picture is that the world is changing for the better: a number of despotic regimes —notably Russia’s — that depend on looting their country’s natural resources are facing a well-deserved comeuppance.
The question is whether they accept their fate, or whether the power of black gold to spark violent upheaval will see us all sucked into conflicts that could shake the world.

• Edward Lucas is energy editor of The Economist.

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China will bail Russia out

I believe this is the Americans was reading the other day it needs to be around $65-70 dollars a barrel for producing pricing to work in a lot of places inc North Sea

In times of war and uncertainty you would expect oil prices to be high, especially when the uncertainty is within the middle east..

Yet oil prices are dropping, you could say america is importing less due to their successful fracking operations but it definately looks manipulated.

Enjoy it while it lasts because soon enough it will be back to the $100 dollar mark


Expect tax increases on our petrol prices and then when oil prices reach their highs again we will be paying even more

Interesting read and remember that this type of manipulation has gone on for centuries so it should come as no supreme to us that it is happening.