Moon of Alabama Brecht quote
October 13, 2014

Saudis Dump Oil To Increase Leverage Over U.S. Middle East Policies

During the last years U.S. president Obama talked a lot about energy independence:

In his fifth State of the Union address on Tuesday, President Barack Obama celebrated the efforts his administration has made to cut greenhouse gas emissions, while also praising recent increases in domestic oil and gas production.

Obama said early in his address that there is now more "oil produced at home than we buy from the rest of the world," for the first time in two decades.

Obama did not say that the increase in U.S. fossil fuel production was only possible because international oil and gas prices had increased above the magic $100 per barrel equivalent. Below that price shale gas and oil extraction as well as oil production from tar sands are only marginally profitable or not profitable at all.

But the "energy independence" talk allowed various experts to claim that the U.S. could now ignore the Middle East:

Clearly, the booming American oil and gas businesses are not problem-free, but the benefits -- economic, geopolitical and environmental -- of this impending energy independence far outweigh the drawbacks.

The days when Mideast oil-producing dictatorships and their friends at OPEC could so easily wave their power over a trembling, oil-thirsty West are on their way to becoming a relic of the past.

As a new world-wide recession is creeping in, consumption of fossil fuels has declined. Typically such a decline would be followed by a decline in production by major producers to keep the prices and their income somewhat stable. But that is not happening.

The Saudis and other Gulf state rulers disliked U.S. energy independence talk very much. They need to keep some leverage over U.S. policy. They now decided to end the U.S. "energy independence" talk and to push the U.S. to again do their bidding. The simple method they apply is to keep oil production high enough during a period of declining consumption to take prices lower and to thereby make new U.S. domestic production a money losing business:

[T]he [Saudi] kingdom, OPEC's largest producer, is ready to accept oil prices below $90 per barrel, and perhaps down to $80, for as long as a year or two, according to people who have been briefed on the recent conversations.

The discussions, some of which took place in New York over the past week, offer the clearest sign yet that the kingdom is setting aside its longstanding de facto strategy of holding prices at around $100 a barrel for Brent crude in favor of retaining market share in years to come.

The aim is clear. Kick producers with higher production costs than OPEC out of the market and thereby retain the global market share as well as the leverage needed to pursue the Gulf countries' political aims:

Kuwait's oil minister Ali al-Omair was quoted as saying by state news agency KUNA on Sunday that OPEC is unlikely to cut oil production in an effort to prop up prices because such a move would not necessarily be effective.

Omair said $76-$77 a barrel might be the level that would end the oil price slide, since that was the cost of oil production in the United States and Russia.

The Saudis and the other Gulf producers all have positive current account balances (pdf, Fig 3). They can easily afford lower oil prices.

U.S. shale and tar sand production costs are higher than Saudi or Russian production cost. They are the first to die when prices are kept low:

Allowing Brent to fall below $85 could slow the U.S. shale boom because some producers would lose money pumping at that price, Francisco Blanch, head of commodities research at Bank of America, said in a report Sept. 9.
Curtailing the shale boom would ensure continued U.S. reliance on Middle Eastern energy, Bank of America’s Blanch said.
“For Saudi Arabia, I can’t see why they’d come in and manage prices unless it falls below $90,” Torbjoern Kjus, an analyst at DNB in Oslo, said by phone Sept. 10. “It benefits the Saudis to test where the limit is for U.S. shale.

OPEC’s de facto leader has the “fiscal firepower” to tolerate prices as low as $70 for two years without experiencing economic difficulties, according to Energy Aspects Ltd., a consultant in London. The kingdom held reserve assets valued at $741.6 billion in July, almost double the level five years earlier, according to the Saudi Arabia Monetary Agency.

This strategy will not only allow the Gulf dictators to retain their market share but the Saudis and others will use this strategy to slow down, if not stop, U.S. overtures to Iran as well as to press for U.S. enabled regime change in Syria.

Posted by b on October 13, 2014 at 13:00 UTC | Permalink


Not to mention, it will completely decimate Russia's economy, so I consider it a positive move if you believe oil prices are dictated by supply & demand. But oil prices aren't predicated by supply & demand, they're set and right now they're being set lower for some political purpose. I have to assume that at least part of that purpose is backdoor sanctioning of Russia considering the rather feckless overt official sanctions. They listened to me and perhaps will put Russia back in its rightful place where it belongs. Those Soviet shoes no longer fit — they're multiple sizes too large. You can never go back. Never.

Posted by: Cold N. Holefield | Oct 13 2014 13:28 utc | 1

Cut to the chase ... skip all the biofuels and go to photosynthetic hydrogen, about 2/3s of the way down ... Algal Biohydrogen Production From Water.


Algal Biohydrogen Production From Water. Certain photosynthetic microbes, including algae and cyanobacteria, can produce H2 from the world's most plentiful resources in the following reactions: 2H2O + light energy -> O2 + 4H+ + 4e- -> O2 + 2H2. The first recorded observation of this was reported over a hundred and ten years ago, when a natural bloom of Anabaena after being placed in a glass jar, started to produce H2. Hydrogen uptake and production were the first reports of H2 metabolism in a green alga (Scenedesmus obliquus) in the early 1940's.

... and when you burn hydrogen - in a fuel cell or in a stove or furnace - you get water. We could all produce our own fuel and store it for when we need it. Or use it to run electric vehicles ...

If one tenth the funding poured down the US Wehrmact's rat hole were actually devoted to solving problems instead of to creating more we could get off the fossil fuels and the perpetual war treadmill at the same time.

That's the problem from the point of view of the TNCs of course. Their lives are dependent upon our deaths, either nearterm as the result of their wars or long term as a result of their fossil fueled greed.

There is no hope unless and until the political system and financial systems are separated, they're like Siamese twins.

Posted by: jfl | Oct 13 2014 13:59 utc | 2

Putin is just a bonus for House of Sods.

Price at the pump is predicted to reach 2009 levels. October surprise for dems at the mid-terms? People often vote pocket-book.

Posted by: Ben Franklin | Oct 13 2014 14:07 utc | 3

Sorry, b. I think you've missed the mark here. US involvement in the middle east was never primarily motivated by its own domestic oil consumption. ME oil has never been a significant source of oil for the US. Most of our oil is either domestically produced, or else it comes from somewhere else in the western hemisphere (Mexico, Venezuela, Canada).

No, US control of the ME is about maintaining control over Europe and Japan, who get most of their oil from there. (Europe also gets a lot of oil/natgas from Russia, but from Washington's point view, that's a danger.)

I think the Saudis are actually trying to help us more than hurt us. Dramatically lower oil prices will weaken Iraq and Iran economically (just as it did during the 80's), making it harder for them to save Syria. And--though I hate to agree with Coldy!--it could also have a negative impact on Russia, too.

The only wildcard here is China. The PRC imports the vast majority of its oil, and most of it presently comes from the ME. I suspect that dramatically lower oil prices could help China economically, giving them faster economic growth and more money to help out Iran, and perhaps to finance drilling projects in Russia, too. And, even if it hurts the frackers in the US, I also think this could possible be good for the economies of America, Europe and Japan--again, just as it was in the 80's.

Posted by: Seamus Padraig | Oct 13 2014 14:24 utc | 4

Also, Russia's economic forecasts are based on $100 per barrel (oil currently account for 50% of state revenues, so any dip in price will cause a big bite out of the budget)

Posted by: ralphieboy | Oct 13 2014 15:19 utc | 5

Just think of the impact of lower oilprices for Russia !!!

Posted by: Willy2 | Oct 13 2014 15:22 utc | 6

Big impact on US shale oil companies. Even with crude above $100 a barrel, shale producers were spending money faster than they made it. Currently stock prices are tanking at Chesapeake Energy Corp and QEP Resources Inc.

Posted by: Don Bacon | Oct 13 2014 15:28 utc | 7

My view is that the price of oil is not dictated either by US/EU consumption or by the Saudis anymore - it is now Asia/BRICS.

Yes, the US and EU has been lowering it oil consumption slightly in recent years with US domestic oil production rising. However, a significant portion of this decrease is due to lack of economic activity, while the domestic oil production still represents a minority of US oil consumption (i.e. imports are still dominant).

On the other hand, the overall demand from BRICS and developing nations has more than compensated for all US/EU declines:

Thus oil production from Saudi Arabia can only reduce overall oil prices if demand from the BRICS/developing nations stops growing. A major recession in China might do it, but then again, might not.

Thus the ability of the Middle Eastern countries to sustain lower oil prices is likely true, but the ability of said nations to actually lower oil prices is very much in doubt - unless they're willing to deliberately undercut the market by selling at lower than market prices. In order for price undercutting to work, the Middle Eastern producers must also be able to supply enough at the undercut prices to price out existing producers.
It is far from clear they're willing and able to do either of these things.

Posted by: c1ue | Oct 13 2014 15:29 utc | 8

Brick-by-brick. the Great Sino-Russky wall is being built.

"Beijing is keen on substituting the US dollar with the yuan in all of China’s trade with other countries. The Chinese currency now trades directly with the Japanese yen, the Australian dollar, the Brazilian real, the EU’s euro, the New Zealand dollar and many other currencies.

Meanwhile, the signing of the gas agreement on Monday in Moscow was a “pre-condition” for the entry into force of the $400 billion East Route natural gas deal to export 38 billion cubic meters of gas to China for 30 years, signed in May earlier this year between Russian state energy giant Gazprom and the China National Petroleum Corporation.

“Over the past six years, trade between Russia and China has almost doubled, from $40 billion to $90 billion,” said Medvedev.

Moscow is looking to increase trade and banking cooperation with Beijing, even as it battles new rounds of sanctions imposed by the EU and US over the Ukraine crisis.

Posted by: Ben Franklin | Oct 13 2014 15:38 utc | 9

bold off?

Posted by: Ben Franklin | Oct 13 2014 15:39 utc | 10

sorry - that was me - I tried unbold and unstrong, in caps & in lc, in preview and posted and they don't work to solve the problem - any ideas?

Posted by: Don Bacon | Oct 13 2014 15:51 utc | 11

okay -- didn't work in preview but okay now

Posted by: Don Bacon | Oct 13 2014 15:52 utc | 12

Admit it, the bold is easier to read.

Posted by: Don Bacon | Oct 13 2014 15:53 utc | 13

It is easier on these old eyes.

Posted by: Ben Franklin | Oct 13 2014 16:00 utc | 14

i thought i had bad eyesight, but the bold is painful to look at personally.

Posted by: james | Oct 13 2014 16:38 utc | 15

It's a good thing for America. Less oil wells means fewer oil spills and less fracking means less polluted groundwater. For once the house of Saud does something that benefits the united states.

Posted by: Crest | Oct 13 2014 16:45 utc | 16


"Sechin said that production of oil from the Kara Sea field could begin within five to seven years. The field discovered would be named “Victory.” There is more than a little irony in that name. Because of the economic sanctions drafted by the US Treasury Undersecretary for Terrorism and Financial Intelligence, David S. Cohen, as of October 10, ExxonMobil will be forced to withdraw from the Russian project and incur huge losses or violate the US Government sanctions and face severe penalties. The Obama Administration has just scored an own goal (Eigentor?) with its brilliant new precision financial and economic warfare unit inside the Treasury Department. Bravo, Washington! You have just inflicted major damage on one of the largest corporations in the United States. When ExxonMobil did the deal with Rosneft, it gambled that the Arctic region, the world’s greatest unexplored potential oil region, could be the company’s salvation in terms of assuring long-term crude supplies. The gamble proved correct and did so just as the stupid Obama Administration bureaucrats imposed sanctions on Sechin and the Arctic project they intended to damage Russia."

Posted by: Nana2007 | Oct 13 2014 17:07 utc | 17

On the "war against Russia" through oil prices.

Reagan did that in the 1980s. But now there is shale and there was a lot of Obama hyping about energy independence and providing oil to Europe and about jobs, jobs, jobs.

That will all go away when the Saudis dump.

I have added links in the piece above that clearly show that U.S. shale production costs much higher than Russia's production cost. Shale and tars sands will be snuffed out first and so will the "energy independence".

If you believe that the U.S. engineered the Saudi dump you must also believe that Obama is willing to give up some of his few policy successes for that. I don't think that is the case.

It is also obvious that the Saudis are in a pretty bad mood towards the U.S. over several issues while they are mostly friendly with the Russians.

Posted by: b | Oct 13 2014 17:12 utc | 18

Mission Destroy Putin...

Have you considered that this may be in conjunction with US wishes to destroy the Russian economy? Seems that destroying European economy is a small price towards that aim...

Posted by: Kim Sky | Oct 13 2014 17:29 utc | 19

"If you believe that the U.S. engineered the Saudi dump you must also believe that Obama is willing to give up some of his few policy successes for that. I don't think that is the case"

It's just conjecture; no belief is involved. If Saudis aren't discounting to counter Russian objectives, then why? Obama's legacy is all important to him, but he fears losing the Senate as a hinge for that. I think there was a non-verifiable (except for possible leaks which can be tamped down) deal; a quid pro quo.

It only makes sense since a pragmatic cynic understands that POTUS, and by association, democrats will get credit for lower gas prices, and we know that's a metric for elections.

Posted by: Ben Franklin | Oct 13 2014 17:30 utc | 20

The latest latest news are that Turkey will continue to train the Syrian opposition to Bashar al Asad and that the same opposition is still unable to agree on a leader.

Posted by: Mina | Oct 13 2014 17:38 utc | 21

You know the latest years US stirring of the mid-east pot? It was to push the oil-price over the 100$ mark to make US domestic production profitable.

Posted by: Alexander | Oct 13 2014 17:42 utc | 22

" It was to push the oil-price over the 100$ mark to make US domestic production profitable."

Isn't that like saving gas by pulling your cadillac with a smart-car? The cost of doing business with higher ppb hobbles industry and those jobs stats; all killers for the WH.

Posted by: Ben Franklin | Oct 13 2014 17:47 utc | 23

Well b, if Obama was claiming the so-called shale and sand oil boom as a policy success, why has he not approved the Keystone Pipeline? Considering your post, not approving it now makes sense. Perhaps he knew that oil prices would be set lower in several years and stalled the legislation knowing the Keystone Pipeline would be moot because shale and sand would no longer be profitable, although there is evidence that extraction costs for sand and shale, but especially sand, are declining significantly because of new & improved processes from just six years earlier.

Putting the kibosh on Keystone

The federal government recently began its seventh year of considering whether to approve construction of the Keystone XL pipeline. Nearly all that time has passed under the administration of President Obama, who seems content never to decide the pipeline's fate. That way, it wouldn't be built, which would please the president's supporters on the liberal environmental fringe, but would never be explicitly rejected, which could offend everybody else.

It's striking to see an administration stonewalling an issue with so much popular support on the other side. A Washington Post-ABC News poll in March found that 65 percent favor building the pipeline versus 22 percent who oppose.

A few months ago, a Pew Research Center study found strong support for the pipeline in six of its seven categories, ranging from mostly conservative to mostly liberal.

For example, among a group labeled “next generation left,” that is, young people who are liberal in outlook but skeptical about whether government can accomplish much, there was 62 percent to 28 percent support of the pipeline.

Only the group labeled “solid liberals” opposed the pipeline, 57 percent versus 30 percent. Although they are passionate about their views, they are in a distinct minority; according to Pew; “solid liberals” make up just 17 percent of all registered voters.

So the Obama administration has solidly aligned itself with the 17 percent against the other 83 percent. Perhaps that's a sustainable position for a president who won't face voters again. It's a tougher job for Democrats running for office in an already tough year. Last April, 11 of them wrote a letter to Obama urging approval of the pipeline.

Democrats in other key races support the pipeline, too. Michelle Nunn, running for the Senate in Georgia, is one. “We can produce even more energy and create jobs if we embrace innovation and move beyond partisan bickering,” Nunn said in a recent TV ad. “But too many Democrats play politics by dragging their feet on the Keystone pipeline, while Republicans block renewable energy initiatives that would reduce our long-term dependence on fossil fuels.”

That sounds clear, but the story behind Nunn's ad illustrates the Democrats' dilemma when it comes to Keystone. Just this week, Nunn accepted the endorsement of the League of Conservation Voters, a staunch pipeline opponent, and in the past she has attended fundraisers of — and accepted money from — West Coast environmentalists who are implacably opposed to the pipeline.

Events like last weekend's “People's Climate March” in New York are designed to create the appearance of overwhelming support for the environmental agenda. But when it comes to the Keystone pipeline, the marchers are a small group isolated in a distant corner of public opinion.

At various times in the last few years, Republicans have felt that Democrats would just have to give in and let the pipeline go forward. It never happened. Now, the president and his allies on the environmental left seem determined to keep the pipeline stalled even if it contributes to Democrats losing the Senate.

If the prospect of a costly loss plus the continued opposition of an overwhelming majority of Americans won't open their minds, what will?

Posted by: Cold N. Holefield | Oct 13 2014 18:37 utc | 24

LIVE UK to vote no on Palestine (well thats what I believe)

Posted by: Anonymous | Oct 13 2014 18:49 utc | 25

I was startled/appalled to hear the following radio program ( yesterday afternoon driving down from Estes Park ... apparently (as we used to do nuclear) we are vigorously, any aggressively attempting to export fracking technology (and hardware naturally) anywhere we can --- this time for "clean energy" natural gas. Reports covers China -- except, oops -- it screws up the ground water ... but it's cheap, oops, not so cheap, it's cleaner than coal, nd plentiful!!! ... but the rural Chinese are already incensed about quality-of-life, not to mention absolute poisoning of their environment.

It's part one of two, conducted by Mother Jones reporters, and really rather fascinating in light of hubris on display and the growing anti-fracking sentiments here 'at home'. Poisonous, but cheap, well, actually not so cheap ... but it's natural gas!!!

Report was fascinating in going into how making China energy "independent" via fracking was good for global stability and might prevent Chinese South-China-Seas aggression -- Putin alliance elephant like ignored.

Posted by: Susan Sunflower | Oct 13 2014 19:04 utc | 26

@It was to push the oil-price over the 100$ mark to make US domestic production profitable.
Posted by: Alexander | Oct 13, 2014 1:42:38 PM | 22

Yea, rather classic "Shock Doctrine" lesser-of-two-evils, strings-attached gotch-over-a-barrel "bargaining" ...

I think the fact that Keystone's load is for export only has "trickled down" and a number of rail freight disasters/infrastructure deterioration/lack of oversight has made the whole thing less attractive than it was a few years ago -- even to fat-cat supporters.... they're long-range thinkers and planners ... they may well save this fight for another day.

Posted by: Susan Sunflower | Oct 13 2014 19:11 utc | 27

LIVE UK to vote no on Palestine

Next Monday. No idea myself if that will happen, but if it is no, the Labour party's chances in the election next May will decline.

Posted by: Laguerre | Oct 13 2014 19:12 utc | 28

But you can hardly say that US shale oil and gas production is profitable
in the first place.
The entire shale oil and gas industry is built on a
Ponzi-like scheme (built on quicksand!!!),

just like the sub-prime housing bubble

Posted by: chris m | Oct 13 2014 19:12 utc | 29

Oh yeah, Monday is today.

Posted by: Laguerre | Oct 13 2014 19:12 utc | 30

@B: The truth is even more complicated. According to my info, the Soviet Union had (large) debts in German Marks but their oilrevenues were in USD. The Soviet Union was squeezed between falling oil prices (from $ 40 in 1980 down to say $ 20 in 1990) while during the 1980s the USD fell against the German Mark. Think about what that meant for the Soviet Union ..........

Falling oil prices were also responsible for ending the war between Iraq & Iran (1980-1988). The war has cost both countries LOTS of money while their oil export revenues fell sharply (falling oilprices).
That war was started by one Saddam Hoessein with the full knowledge & support of the US. And that war marked the start of the deterioration of the relationship between Washington & Baghdad.

Posted by: Willy2 | Oct 13 2014 19:23 utc | 31

Correction: The USD fell against the German Mark from 1984 up to 1995.

Posted by: Willy2 | Oct 13 2014 19:25 utc | 32

Were those oilprices manipulated ? I dont'know but nonetheless the facts speak for themselves.

Posted by: Willy2 | Oct 13 2014 19:27 utc | 33

In that regard falling oilprices could end the wars in Syria & Iraq as well. Because then Saudi Arabia & Qatar could get squeezed finacially as well, forcing them to drop financial support for ISIS & the rebels in Syria.

Posted by: Willy2 | Oct 13 2014 19:31 utc | 34

Matthew Simmons in his 2005 book Twilight in the Desert stated, Saudi oil was in irreversable decline. That everry time KSA had promised more production they didn't deliver.

I expect the same will be true this time. KSA just suggesting they will increase production was successful in keeping oil prices down. I don't think they'll get away with this time.

Posted by: okie farmer | Oct 13 2014 20:16 utc | 35

"The Texas energy specialist, Matthew Simmons, has suggested that the world derives false comfort from the Saudi Arabian assurances of willingness to increase production to meet consumer shortfalls." (Financial Times, 16th September 2005)

Posted by: okie farmer | Oct 13 2014 20:17 utc | 36

Yet as Mr. Simmons observes: "History has frequently shown that once secrecy envelops the culture of either a company or a country, those most surprised when the truth comes out are often the insiders who created the secrets in the first place."
Mr. Simmons became suspicious of Saudi claims after taking a guided tour of Aramco facilities in 2003. To penetrate the veil, he turned to the electronic library of the Society of Petroleum Engineers, which regularly publishes technical papers by field geologists. After downloading and studying more than 200 reports by Aramco personnel, Mr. Simmons came up with his own portrait of Saudi Arabia's oil resources. It is not a pretty picture.
Almost 90% of Saudi production comes from six giant fields, all of them discovered before 1967. The "king" of this grouping -- the 2000-square-mile Ghawar field near the Persian Gulf -- is the largest oil field in the world. But if Saudi geology follows the pattern found elsewhere, it is unlikely that any new fields lie nearby. Indeed, Aramco has prospected extensively outside the Ghawar region but found nothing of significance. In particular, the Arab D stratum -- the source rock of the Ghawar field -- has long since eroded in other parts of the Arabian Peninsula. The six major fields, having all produced at or near capacity for almost 40 years, are showing signs of age. All require extensive water injection to maintain their current flow.
Based on these observations, Mr. Simmons doubts that Aramco can increase its output to anywhere near the level it claims. In fact, he believes that Saudi production may have already peaked. Is he right?
Mr. Simmons's critics say that, by relying on technical papers, he has biased his survey, since geologists like to concentrate on problem wells the way that doctors focus on sick patients. Still, the experience in America and the rest of the world shows that oil fields don't last forever. Prudhoe Bay, which was producing 1.2 million barrels a day five years after being brought on line in 1976, is now down to less than 400,000.
The mystery of Saudi oil capacity bears an eerie resemblance to Saddam Hussein's apparent belief that his scientists had developed weapons of mass destruction. Who are the deceivers and who is the deceived? No one yet knows the answers. But at least Matthew Simmons is asking the questions. (Wall Street Journal, June 28, 2005)
The water injection refered to, is 80%, which means the oil has to be cleaned of the water before it can be processed.

Posted by: okie farmer | Oct 13 2014 20:31 utc | 37

@18 b. i agree with you.

@22 alexander.. makes sense to me. otherwise all the push for oil independence is in fact very unrealistic.

@29 chris m... that is exactly how i see it too.

@31 willy2.. interesting first paragraph. thanks for that.

@34 willy2.. i think you are dreaming on that one.

Posted by: james | Oct 13 2014 20:40 utc | 38

The US ignore the ME? Never. The US has the military for leverage in the ME. US control of ME oil has nothing to do with US usage.
Since the US is busily sucking Canada dry

"The report pegs supply costs for oil sands projects in the range of US$50 to US$90 per barrel. That compares to the US$70 to US$90 a barrel needed to blast light, sweet crude through underground fissures in North Dakota’s Bakken shale"

Making an oil sands barrel an average of $70.
The oil sands are big producers

Controlling ME oil is the ticket to controlling the EU. Possibly China.
Lower oil prices are certainly harder on Russia. Venezuela too.
Lower oil prices help with the fuel costs for the war machine
It would seem the Saudis are still aiding the US

Posted by: Penny | Oct 13 2014 21:05 utc | 39

The US ignore the ME? Never. The US has the military for leverage in the ME. US control of ME oil has nothing to do with US usage.
Since the US is busily sucking Canada dry

"The report pegs supply costs for oil sands projects in the range of US$50 to US$90 per barrel. That compares to the US$70 to US$90 a barrel needed to blast light, sweet crude through underground fissures in North Dakota’s Bakken shale"

Making an oil sands barrel an average of $70.
The oil sands are big producers

Controlling ME oil is the ticket to controlling the EU. Possibly China.
Lower oil prices are certainly harder on Russia. Venezuela too.
Lower oil prices help with the fuel costs for the war machine
It would seem the Saudis are still aiding the US

Posted by: Penny | Oct 13 2014 21:05 utc | 40

not sure why that posted twice? apologies

Posted by: Penny | Oct 13 2014 21:07 utc | 41

re 25. The Brit parliament voted yes on Palestine, according to the radio by a large margin, though I don't have the figures yet. Not a binding vote though. It's always like that. We vote, but nothing happens.

Posted by: Laguerre | Oct 13 2014 21:40 utc | 42

The world oil consumption pattern in the 1980s was primarily the US and EU - and Russia had just annoyed the Saudis with their move in Afghanistan. Couple that with the long standing Saudi feud with Iran - these were the twin pillars underlying the oil price decline in that era. OPEC was also significantly more monolithic in that era - and the post Embargo efficiency mandates in the US and EU dropped demand very significantly.

As I note above: the US and EU no longer drive oil pricing because of the massive upswell in demand from BRICS and developing nations. If the Saudis truly can chop the price of oil down into the $70s per barrel, that will prove that their much maligned reserves and production capacity is what the Saudi state says it is vs. what many industry types have opined.

But until that happens, I will reserve judgment.

Posted by: c1ue | Oct 13 2014 21:53 utc | 43

The German government has some free advice for the Saudis as well ...

German Delegation Meets Saudi Prince in Islamic State Talks

The European power wants to convince Saudi Arabia and other Middle Eastern nations to join in the fight against the Islamic State.

Before flying into Saudi Arabia, Steinmeier said in a statement on Sunday: "Saudi Arabia plays a central role in facing crises in the region. In fighting IS, it will be crucial to reach an understanding and develop a common political strategy above and beyond military action."

... 'a common political strategy above and beyond military action against ISIS?'

Like defunding them?

Like ending the US -> KSA -> ISIS arms flow?

Posted by: jfl | Oct 13 2014 22:38 utc | 44

Here's another thing A LOT OF people don't know. The US invasion of Iraq was done for 2 reasons:

- Control of oil supplies. If the US can control the oil supplies form the Middle East then it also can control China that gets oil form the Middle East as well.
- Anyone who wanted to buy iraqi oil in the timeframe 2000- May 2003 had to pay for that oil in EUROS, instead of in USD. Oil priced in EUROS is the mortal enemy for the US. It would send US interest rates through the roof.

Posted by: Willy2 | Oct 13 2014 23:14 utc | 45

the goal of lowering prices seems to be shared by the USA, with the goal of hurting not US producers but Russia--

Posted by: Cu Chulainn | Oct 13 2014 23:22 utc | 46

I think it is fairly amusing that people like Cold Hole think that "markets" really do rule the world, and that Russia, China, and other nations fates rest on nothing more than Wall Street traders and the whims of some desert tyrants.

Unlike the US - who is stuck in this hopeless economic and ideological straightjacket by its oligarchy - China, Russia, Venezuela, Cuba and other countries are open to other forms of exchange and different economic modes. Unlike the US people, who are merely victims of their oligarchs who run the supposedly "free" markets, these other countries are willing to pour stimulus into their economies, trade with others in new ways, including barter. The countries know that they either stick together, or all is lost. China will not let Russia fall, nor will Russia let China fall. China will stand up for ALBA, and ALBA will stand up for China. And on, and on, and on...

The countries are not bound only be the buck. They still have their humanity. And my guess is they will weather any storm far, far better than that storm which is coming to the US if the precarious petro-dollar collapses.

Posted by: guest77 | Oct 14 2014 0:18 utc | 47

I'm trying to imagine just what kind of massive threat or crisis would cause the US to turn from it's neo-liberal, phony "free market" ideology - even if it meant the existence of the country.

I can't ever imagine any threat that would cause the elite to look to the American people as an asset, to say "we need our people to be stronger" instead of "we need taxes on our corporations to be lower". Even if faced with World War 3, we will never see a return to the America that fought World War 2 as a united front.

The US will stick with corporate system until the whole regime expires. There is no turning this ship around. The oligarchy has too much power. They have all the power at this point. The American people are not an asset to them, we are just "the 47% of freeloaders". They'd happily bring people from India to do any job for a little cheaper - no matter that real unemployment grows. At best, we are shoppers and consumers - 350 million little bees to make their honey, send them their taxes, fight their wars, buy their crap, and do as we're told.

They own this place. We're paying the rent.

Posted by: guest77 | Oct 14 2014 0:36 utc | 48

Look at a country like Venezuela - the poster-child of oil dependent states.

When I was there, the theme the government was working on was "food sovereignty". They intended to grow all of their own food in Venezuela. This frees them in many ways from US hegemony. This made them less dependent on the oil revenues for the basics, which is what really matters.

These countries are not unaware of the challenges that face them. To think that if oil prices go down, they will simply fold is to underestimate them greatly. But then, the US is known for making such foolish mistakes.

Posted by: guest77 | Oct 14 2014 0:42 utc | 49

If crude oil prices remain at these levels or go lower and are sustained for another year - it will be interesting what it does to the national budgets of Russia and Venezuela among others.

The socialist paradise of Venezuela is going to be a good case study. Already, any person that can actually do it is getting their money out of the country so that they can protect their savings.

Posted by: ab initio | Oct 14 2014 0:47 utc | 50

"any person that can actually do it is getting their money out of the country"

Unfortunately there are few who can, which is what makes so many place their votes for "socialist paradise" rather than "neoliberal basket case" that it was before Chavez was elected.

Posted by: guest77 | Oct 14 2014 1:34 utc | 51

@guest77 post 48

Your post expresses, in my opinion also, the unfortunate reality of the state of our country.

Posted by: curious | Oct 14 2014 2:21 utc | 52


Personally, I see Obama as a team member that does his part. His 'legacy' is the payoff comes after office from his library, books, speaking engagements, and (maybe) selling access via a consultancy like Clinton and Kissinger. I think the loss of shale jobs is meaningless to him. It seems clear that he caters to/works for TPTB. Thus, he is essentially a neolibcon. Virtually every initiative that he 'sells' to the public has great(er) benefits for TPTB.

So I would put no store whatsoever in any analysis that relies on Obama having any interest in policy from the standpoint of his 'legacy' in the public eye. Do you recall his outright lying about his signature initiative, Obamacare? ("If you like your doctor you can keep your doctor") and his evident disregard for its smooth start? And that is merely one of many examples that could be cited.

Also, to what extent is the oil drop simply due to economic slowdown? And there may be multiple policy objectives to driving down the price (lower than the market would take it naturally) from geo-political to economic (jumpstart Western economies?) to election-fixing (lower price for gas at the pump might increase support for Democratics in the up-coming US election).

Posted by: Jackrabbit | Oct 14 2014 2:30 utc | 53

@ 48: "They own this place. We're paying the rent."

Yeah, not changing any day soon either.......Unfortunately.

Posted by: ben | Oct 14 2014 2:35 utc | 54

@48- Exactly, and this points to the need to develop local communities that are not dependent on the corporate state. And this is happening now and not incidentally in rust belt sacrifice zones such as Detroit. Strong self sufficient communities that put their people's best interest and participation first looks to me like the only way forward. You don't need us? We don't need you. It can be done.

Posted by: Nana2007 | Oct 14 2014 2:56 utc | 55

@Nana2007 #55
You don't need us? We don't need you. It can be done.

I love the way you express that. I think it's an attitude that can be applied to life in general. I'm here to help you if you need help, but I don't need you any more than you need me. I can make it on my own, and so can you, but maybe we can do better together. If not, I'll move on.

Certainly as consumers we can apply that attitude. Treat me badly? See ya.

Posted by: Don Bacon | Oct 14 2014 3:29 utc | 56

And another thing . . .

Saudis as friendly with Russia? IMO, this plays on the notion that KSA and Israel are angry with Obama/Obama Administration for its 'peace initiative' toward Iran.

Only problem: there is no peace. AFAICT, it is going nowhere but both sides find it advantageous to talk. Obama insured Iran's participation by saying at the outset that this peace initiative was essentially the last step toward war.

This gives Israel and KSA convenient excuses to make a show of distancing themselves from US/Obama. And Obama/Democrats can likewise say they are following an independent policy. Obama/Democrats are even playing up the peace initiative in the up-coming elections as a foreign policy 'win' (we are soooooo close, they claim - as the other side pans the latest offer).

No one can really know for sure. But in many ways they seem to work together and Obama seems to be friendly to neocons in virtually every other area.

NOTE: I am always surprised at how little skepticism there is toward Obama and TPTB. Even those who are critical of Obama in other areas really believe that he is straightforward on foreign policy matters. Yet.... Obama turned a no-fly zone into a bombing campaign in Libya, was eager to bomb Syria on trumped-up evidence, allowed Nuland ("F*ck the EU!") to arrange/lead/promote a Ukrainian coup, has not pursued MH-17 investigation, etc. AFAIK, these (and more) have led the Nobel committee to issue a statement regretting the awarding of the Nobel Peace Prize to Obama.

Posted by: Jackrabbit | Oct 14 2014 3:30 utc | 57

So don't vote. ;-)

Posted by: Don Bacon | Oct 14 2014 3:30 utc | 58

A cornerstone of the US MIC is the Persian Gulf and its despotic kingdoms. The US is building up its forces and installations there, with about 40,000 troops, plus major arms sales to the despots, plus the Fifth Fleet, and now we've got Iran saying that surely there can be an agreement by Nov 24, which would jeopardize all that, plus the problem with KSA and Israel. How can there be any agreement, given all that?

Posted by: Don Bacon | Oct 14 2014 3:36 utc | 59

On a tangent...

In the news again today regarding the photo-exhibit of Syrian 'War crimes'.

Alleged to be innocent protestors killed by the government since the start of the crisis. Government claims it is simply their collection and cataloging of the dead from the conflict (which you have to imagine is carried out in some fashion, somewhere...or perhaps the US is suggesting bodies just be dumped in mass graves)

Anyway, this first popped up back in January

Raised once more in July

Now raised again as they go on display at the US Holocaust Museum

They seem to be honing the story though, selling it as a smoking gun to charge Assad with international war crimes and dramatizing the story of 'Caesar' the noble insider who faked his death and smuggled the data out of the country.

Of course, "Because many of the photos had to be compressed by Caesar to get them to fit on thumb drives, crucial metadata — which would yield the precise date and time that each image was recorded — was lost. Confirming the deaths of detainees shown in the photos with family members who are still inside Syria is also a problem."

But lets just accept that they were "detainees" for the time being. Nothing journalistically improper about making unsubstantiated allegations of war crimes designed to promote the unilateral use of force against a sovereign state.

And no need to worry about UN Resolution 110 (condemns all forms of propaganda in whatsoever country conducted, which is either designed or likely to provoke or encourage any threat to the peace, breech of the peace, or act of aggression). After all, you're only a war criminal if you lose.

Posted by: Bran | Oct 14 2014 3:58 utc | 60

China has got Yuan currency deals with Australia, Chile, some African nations, and Russia. IN OTHER WORDS, IT CAN BUY WHAT IT NEEDS IN ITS OWN CURRENCY, WHICH IT ISSUES.

China buys half of Iran's oil. I don't know what currency it uses to pay for that. IF YUAN, THEN AGAIN IT CAN BUY WHAT IT NEEDS IN ITS OWN CURRENCY, WHICH IT ISSUES.

The biggest expense in oil that the USA federal government has is for its military. Multiple the number of active military globally and multiply by three gallons a day just for heating and food and air conditioning. I picked 3 gallons out of a hat, could be more. Then add up all the equipment that needs gas and oil EVERY DAY, all the planes and ships and tanks, and supply lines. Solar and wind power don't and won't figure in this for decades. Whistling Dixie.

BECAUSE we are the reserve currency, BECAUSE we got Saudi Arabia to agree to accept payment or oil in USD in 1975--which means that Saudi Arabia parks it payments at the NY Fed in govt CDs called teasury securities--we, the USA, paid exactly the cost of a keystroke to buy Saudi oil BECAUSE WE ISSUE OUR OWN CURRENCY. (If the USA actually paid in physical dollars, it would cost the US federal government $0.07 per $100 of oil, or French wine, or German cars, because it costs $0.07 to print a dollar...the new ones are $0.09.) The US federal government does not pay for this with taxpayer dollars. Taxpayers dollars, when paid to the federal government that issued them, are extinguished, removed from circulation.

Idiot Obama and his sidekick Jack Lew think that these sanctions against Russia are punishing Russia. It's going to punish us. Possibly by 2030 if they keep this shit up. Because China is going to build up an international market for trading in Yuan, the way we have a monster market in treasury securities (US currency) currently. When the rest of the world decides it wants to acquire Yuan instead of dollars, then the US reserve dollar is over. It wont be a disaster: we'll turn into Canada or GB or Australia or Japan. But superpower days are over.

This is what happens when we have harebrains who don't understanding federal accounting (100% opposite of businesses/households/state & local govts who merely USE THE CURRENCY, not issue it) for political leaders. And it's why we haven't recovered from 2008 because Obama and Lew don't know what they are doing.

Posted by: MRW | Oct 14 2014 4:00 utc | 61

Sorry for all the typos. Keyboard acting up.

Posted by: MRW | Oct 14 2014 4:01 utc | 62

Here's an interesting take from Ilargi:

"This is not a purely economic issue, it’s political. The US has a large voice in it in the director’s role, and the House of Saud plays the part of the protagonist. This is a major development in world politics, it’s not just some financial market-driven move.

World power relations are being hugely changed on the fly as we’re all watching and trying to figure what to make of all this. One thing’s for sure: the world will never be the same.

Why it happens now is a great question, which is impossible to answer. And that’s fine: it’s enough to try and understand exactly what is going on, let alone why.

But I bet you it has to do with the US and Europe realizing they can no longer keep pretending their economies are growing or recovering or doing fine.

We’ve landed in the next phase of what arguably started in 2007, but what you could place back many years before that, an economic system based on the fantasy that is debt driven growth, inflated by a factor of a trillion, give or take a few zeros.

That system is in the process of dying. And the people who have tried to make you believe, and succeeded, that it would all be fine in the end, are now jockeying for position in the aftermath of the demise of a world built on debt.

And they are the same people who built that world, profited from it to an insane degree, and want to use those profits to hang on to power in a world that will be dramatically different from the one they called the shots in. And that doesn’t bode well; it tells us violent clashes will be on the horizon."

Posted by: Nana2007 | Oct 14 2014 5:14 utc | 63

@51 Guest77

At least in the neoliberal basketcase they did not have to stand in line for a whole day to get a roll of toilet paper.

Let's keep this discussion going on the state of your socialist paradise once every month. Let's see how they are doing.

Posted by: ab initio | Oct 14 2014 6:19 utc | 64

@61 MRW

When the Yuan becomes convertible and capital controls are removed only then does it have a chance to become a reserve currency. And if others have to accumulate Yuan as reserves then China will have to run trade deficits. Let's see how that works for their leveraged to the hilt banking system.

Posted by: ab initio | Oct 14 2014 6:22 utc | 65

Saudis Dump Oil To Increase Leverage Over U.S. Middle East Policies


Saudi/US/Israel/Turkey/Iran/UAE etc etc are in perfect sync. The objective is to own the Shia cresent while keeping domestic opposition to an absolute minimum. From one end they terrorize you with ebola 24/7 while on the other they ease up on the price of oil. It's a full spectrum ass-fk with a side benefit in that Russia is deprived of revenues.

In other words, when gas prices go down you are experiencing something akin to triple penetration.

Posted by: Where-Wolf | Oct 14 2014 6:48 utc | 66

The drop in oil price is because the USA has its flunkies in the oil commodity market deliberately shorting the price so the impact will be felt mostly in Russia.
OBOMBER and his terrorist buds are hoping the Russian people tire of their economy being savaged by the USA and throw Putin out.

As for our fracking, wait until those chemicals used to frack the oil out drifts down in the water aquifers. Then try drinking that poison.

Posted by: Catman | Oct 14 2014 10:49 utc | 67

NATO Partner Turkey Bombs Kurds in SE Near Iraq Border

Just to illustrate how messed up the US coalition is to fight the Islamic State across Syria and Iraq!!

Quite a selective R2P policy by the Obama administration and its "coalition" of fifty nations. Why did the western coalition save the Sinjar mountain people and not the Syrian Kurds?

Syrian Kurds protected their territory by fighting jihadists of Al Nusra Front to dismay of Turkey | |
Turkish fighter jets bomb PKK positions for first time since start of peace bid | Hürriyet Daily News |

○ Secretary Kerry: Kobanê not part of our strategy to defeat Islamic State
○ UN envoy urges Turkey to let Kurds cross border into Syria to 'prevent massacre'

Posted by: Oui | Oct 14 2014 12:00 utc | 68


b must have just discovered Zero Hedge, as evidenced by his next tell, on MS Zero Day.

The facts are, the Saudis have never used a 'glut the market' strategy, ever. The War in Iraq came only after Prince Bandar publicly proclaimed $15/BBL Oil for Food was hurting profits, and that "$25 would be a more reasonable price". Within a year of OIF, after the decimation of Iraq's lowest-cost, sweetest crude, Cheney delivered $147/BBL and made House of Saud world's first gazillionaires, with ONE BILLION DOLLARS A DAY in excess oil profits.

Read World Bank and FRED economic statistics, don't listen to Tyler Durkin. Global energy demand has flatlined since 2011. US & EU went flatline after 2011. Japan continues a more than decade-long slide. China is heading down, investment credit is off -97%, and they're clutching at Russia like two drowning child who've fallen through the ice. Demand is gone.

And, more to the point, after Iraq announced in June that oil production had now exceeded pre-war volumes, and might reach 8MBBL/D by 2016, that's the very first time anyone heard of ISIS, disrupting Iraq oil production. But with the US now holding ISIS to a stalemate, anything Saud can do, Iraq can do cheaper. Flooding the market would hurt KSA much more.

And that's why last month the Sauds CUT OIL PRODUCTION by 400,000 barrels per day (WSJ). We're in a steep global recession! Samsung predicts -60% loss in sales volume. There is just too much stuff. Look at all the pull-dated products going out the backdoor of your local supermarket. Nobody has nada, and 250M Indonesians just lost their fuel subsidies.

The Russians have too much oil. The Canadians have too much oil. The Venezualans have too much oil. Nigeria has too much oil. The US has too much oil. What POSSIBLE motive could the Sauds have to sell into a global glut, besides Durkin's furball theory 'Breaking Frackers'? The Sauds have only WITHHELD oil from the market, or in rare circumstances, when the price is so high that it's impacting economies, they have sold into a SHORTFALL, but never a glut.

No, my friends, whoever is spreading this 'My Friend Saudi' theory has an ulterior motive.

Posted by: ChipNikh | Oct 14 2014 12:15 utc | 69


The Shortist Conspiracy Theory has already been clearly disproved with PMs, what possibly proof does anyone have that such a SCT exists for crude oil, when for the last decade, it's soared 800% of what it was during the Clinton Era.

What's the point of spreading a SCT rumor when it's so obviously now a pull-dated theory?

The Fix is In!! The Sky is Falling!! Buy Precious!!

Sure, sure. Whatever you say.

Posted by: ChipNikh | Oct 14 2014 12:20 utc | 70


Your logic is illogical. If the rest of the world wants to 'acquire' US$s, it will do so by selling the US some commodity or some manufactured item. If the rest of the world want to 'acquire' Yuan, it will sell to China, which will re-manufacture and 'acquire' US$s from selling re-manufactures to US. Nobody but central banks and currency hedge funds 'acquire' a currency. China represents the exact same threat to the US$ today, as it did when Clinton made China MFN. It's all about foreign trade-v-domestic production and has absolutely nothing to do with Petro Dollars. If the Sauds want to sell oil to the US, it will 'acquire' US$s. And now Germany can't 'acquire' any more rubles, because of RU sanctions against EU sanctions. Ergo, by your theory, the 'Deutschmark' is doomed!

You can always, always spot a Goldbuggerer when they get to their rollup closing pitch.

Posted by: ChipNikh | Oct 14 2014 12:35 utc | 71

A couple of topical theories from Xymphora...

Tuesday, October 14, 2014

"Exclusive: Privately, Saudis tell oil market - get used to lower prices" This is bluff (perhaps a manic phase of Prince Bandar's mental illness). The Saudis can't afford to do this - they need big revenues to fund their own social programs or face the revolution they fear, and they certainly don't benefit by wrecking OPEC. It may just be a warning to the Americans to get with the Saudi plan for Syria (the Americans need the high oil price numbers to keep the fracking illusion going, an illusion that creates the phony economic numbers that keep up the deception that the US isn't in severe economic difficulties), a plan which at least the Pentagon seems to be resisting (the Pentagon has been choosing bombing targets which appear to be helping the Syrian government).

Posted by: Hoarsewhisperer | Oct 14 2014 12:59 utc | 72

Posted by: Hoarsewhisperer | Oct 14, 2014 8:59:07 AM | 72

the Pentagon has been choosing bombing targets which appear to be helping the Syrian government

Bluff or propaganda? The right hand doesn't know what the left is doing? Chaos!

The ineffective US bombing campaign is probably great for ISIS recruitment. And subtly and not-so-subtly linking US-bombing with Iran/Syria means ISIS directs the ire of their patsies at those countries. Clever!

Clever or Chaos? Mmmm...

Posted by: Jackrabbit | Oct 14 2014 14:41 utc | 73

Jackrabbit @ 73

"The ineffective US bombing campaign is probably great for ISIS recruitment. And subtly and not-so-subtly linking US-bombing with Iran/Syria means ISIS directs the ire of their patsies at those countries. Clever!"

The ineffective bombing by the US is more effective then people realize
It's destroying Syrian infrastructure.
It creates an illusion for the masses to buy into- You know, rah, rah the good guys and all that.
Buoys network ratings- along with other media

It allows the US to constantly test Syrian air defences, look for weakness and be ready to exploit the weakness as soon as it's found

Doubtful it aids ISIS recruitment. Or the US wouldn't be talking about taking the PKK off the 'terror list' PKK has been fighting with the Peshmerga already.

Clever Chaos!

Posted by: Penny | Oct 14 2014 14:51 utc | 74

@ChipNikh #69
You state that world energy demand has been flat - but the subject here is oil.

Please post your data - I am curious as to where you got this information.

However, the BP annual energy review shows that oil consumption continues to increase dramatically. World oil consumption has gone from under 70 million barrels per day (MMBPD) to just under 90 MMBPD from 1988 until 2013, and growth has been pretty much uninterrupted. Furthermore, the vast majority of this growth has come from Asia Pacific - not just China although China is a large part of it.

What I've posted above repeatedly is that this surge in oil demand is what keeps prices up. Price cuts by the Saudis - even if truly part of a plan to drive oil prices below $70/barrel - will only work if the Saudis are both able to supply enough oil to overcome latent demand and replace sufficient alternative supply.

It is far from clear they are able to do either.

BP oil data link:
Look at the powerpoint slide presentation, page 5

Last note: oil prices right now are still 5x what they were 10 years ago, and 30%+ below peak. I could certainly believe demand would slacken as the world economy turns back down into recession, but the GFC only caused a 1 year dip in oil consumption growth - with overall oil consumption exceeding pre 2008 levels in just 2 years.

Posted by: c1ue | Oct 14 2014 16:44 utc | 75

Well, in post #4 above, I said that China was the wildcard here. Looks like I was right. It seems they're going to intervene economically to help out Russia. Now, let's see what Russia does for Syria...

Posted by: Seamus Padraig | Oct 14 2014 16:54 utc | 76

"Saudis Dump Oil To Increase Leverage Over U.S. Middle East Policies"

Keeping their heads off the inevitable pikes

"Saudi Prince "Astonished" At Oil Minister's "Disastrous Underestimation" Of Effect Of Price Cuts"

"Saudi Prince Alwaleed says falling oil prices 'catastrophic'"

It is telling that he has to resort to a letter posted on the internet to make his point.

From January 2012:  "Why the Saudis want $100-a-barrel oil":

"According to the Financial Times, the Saudis now prefer to keep oil prices at about $100 per barrel. What’s changed?

In a word, spending. Over the past few years, the Saudi government has taken advantage of sky-high crude prices to spend lavishly on public works and social programs to stave off the unrest that’s capsizing parts of the Middle East. As a result, the country now needs prices to stay above $80 per barrel to balance its budgets, up from $60 per barrel in 2008 and way, way up from $20 per barrel a decade ago"

Posted by: Anti-Semanticism | Oct 15 2014 18:59 utc | 77

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